A Multi-dimensional Approach to Subjective Poverty Bernard van Praag & Ada Ferrer-i-Carbonell Faculty of Economics and Econometrics, Tinbergen Institute, SCHOLAR,AIAS, University of Amsterdam Many Dimensions of Poverty, Brasilia August 2005

Subjective poverty Poverty is an individual feeling and not an objective status Operational definition of subjective poverty as being below a certain degree of satisfaction

Multi-dimensional poverty We distinguish several domains of life, and consequently, several types of poverty. It is justified to see poverty as a multi-dimensional concept. Poverty 'with life as a whole' may be decomposed into poverty components with respect to life domains

Literature Goedhart, Halberstadt, Kapteyn, & van Praag, The Poverty Line: Concept and Measurement. The Journal of Human Resources, 12: Pradhan & Ravallion, Measuring poverty using qualitative perceptions of consumption adequacy. Review of Economics and Statistics, 82: Van Praag & Ferrer-i-Carbonell, Happiness Quantified: A Satisfaction Calculus approach. Oxford University Press, Oxford: UK.

Satisfaction question module

Subjective poverty i-poor My satisfaction with my financial situation is evaluated by i (i=3,4,5,6,…) Different poverty classes, e.g.: Extremely poor<4 Poor=4 On the margin of being poor =5

Latent Variable Satisfaction

Estimation by Probit of  and β Poverty border lines: Other domains (health, job,etc) are described by latent domain satisfaction variables : with thresholds:

Two layer model

Aggregate: General Satisfaction with life. Poverty is multi-dimensional Domain poverties are correlated but much less than perfect (R 2 0.5) Overall poverty may be defined Aggregate of domain poverties