Measurement of capabilities: an empirical investigation Hamid Hasan La Trobe University Australia

Lecture Outline 1- A satisfaction criteria (SC) for empirical research within the capability approach (CA) 2- The three basic Issues 3- Why these issues matter 4- How to address these issues 5- The basic ingredients of the CA 6- Problems in the measurment of -functioning -freedom -efficiency -capability 2

Lecture outline 6- The reasons for selecting a single functioning 7- The reasons for selecting being-educated as a basic functioning 8- The capability Model 9- The formative and reflexive indicators for latent variables 10- The statistics and the estimation results 11- Concluding remarks 3

A satisfaction criteria for empirical research within the capability approach 1. Sen Satisfaction Criterion (SSC): empirical work should be in conformity with Sen’s writings. The issues where Sen shows his reservations should not be used in empirical modeling. For example, Sen (1985) categorically mentions the inappropriateness of the use of production function for functioning achievement on the basis of analogy between firms and individuals. Studies using various frontier approaches have failed to satisfy this criterion. 4

2- Pre-requisite Satisfaction Criterion (PSC): the important assumptions underlying a statistical method should be checked before applying the method since most of the data used in the CA are discrete or ordinal in nature and most of the statistical methods are valid for continuous data and assume normality, and are confirmatory in nature and hence needs a strong a priori theory. Studies applying various confirmatory methods have failed to satisfy this criterion since the CA is a framework of thought and not a theory. 5

The basic issue 1 The distinction between voluntary and involuntary choices. For example, A person deliberately chooses a job with a lower income. Can income-based scales correctly measure his welfare? 6

The basic issue 2 The distinction between ability to choose and availability of choices. For example, A person is on hunger-strike due to some political cause and another person is fasting due to religious reason. Both are observationally equivalent in terms of food- deficiency. Can calorie-based scales correctly measure their welfare? 7

The basic issue 3 The distinction between efficient and inefficient conversion rates For example, Two persons - one is disabled and the other is able- with same material resources but different conversion rates. Can resource-based welfare scales correctly measure their welfare? 8

Why these issues matter? Ignoring these issues lead to under- or over- estimation of welfare level. Incorrect measurement of welfare leads to over- or under-utilization of resources used to improve welfare level. 9

How to address these issues? Amartya Sen addresses these issues by differentiating between human capabilities and human functionings. Human functionings are actual achievements whereas Human capabilities are potential achievements. 10

The basic ingredients of the capability approach 1- Functioning 2- Conversion efficiency 3- Freedom i) Process freedom ii) Opportunity freedom 11

Problems in functioning measurement Selection of functionings - lists of functionings Measurement of functionings - measurement error Aggregation of functionings - human diversity 12

Problems in efficiency measurement 1.Maximum achievable functioning is unknown 2.A number of conversion factors 3.Observational equivalence in terms of achieved functioning- voluntary and involuntary achievements are indistinguishable 13

Problems in freedom measurement 1.Right indicators are not available 2.Counterfactuals are not observable 3.Plurality of freedom concept 14

The reason for selecting a functioning Since the extent or nature of freedoms is different for different functionings, taking more than one functionings at a time would be problematic since it would be very difficult to isolate freedoms associated with each functioning. That’s why Alkire (2005, p.15) argues: “Thus I argue that autonomy or process freedoms must be evaluated with respect to each basic functioning. The reason for this is that the autonomies required for a woman to decide to seek paid employment, to be nourished, to plan her family, to vote, to attend literacy courses may be present in varying degrees and it is precisely these variations that may identify the ‘freedom’ associated with a particular functioning or a particular deprivation”. 15

The reasons for selecting being educated as the basic functioning 1 ) It satisfies Sen’s criteria of basic functionings. According to Sen (2004), a basic functioning must satisfy the following two criteria: a) They must be valued as being of special importance at time t to a significant proportion of the relevant population to which person i belongs. b) They must be socially influenceable. That is, they must be functionings that social and economic policies have the possibility to influence directly. 16

Cont. 2) According to Martha Naussbaum (2006, p.322) “Education is a key to all human capabilities”. 3) It varies more from person to person, particularly in developing countries and has instrumental as well as intrinsic values. 17

The Capability Model Capability = f (functioning, freedom) (1) Functioning = g(conversion efficiency) (2) Con. efficiency = h(constraints, resources)---(3) 18

The Conceptual Model Efficiency Functioning FreedomCapability Conversion factors & resources functioning indicators Process and opportunity freedom indicators Capability indicators 19

Formative indicators for conversion efficiency 1.Gender 2.Age 3.Marital status 4.Region of living 5.Income/job status 20

Reflexive indicators for freedom 1.Playing a useful part in things, 2.Capable of making decisions, 3.Achieved success and getting a head, 4.Accomplishment of goals, 5.Ability to cope with crisis, and 6.Reason for leaving school. 21

Reflexive indicators for functioning 1.Achievement of standard of living and social status, 2.Education years completed, and 3.Literacy. 22

Reflexive indicators for capability 1.Life is interesting, 2.Enjoyment, and 3.Happiness. 23

Subjective indicators for constraints and preferences Reason for school leavingPreference (P) or constraint (C) ExpensiveC Too far awayC No discipline in schoolC Had to help homeC Had to help businessC Parents /elders do not approveC MarriageC Education not usefulP No interestP Education completedP Started workP 24

Constraint- preference proportion School left due toPercent Constraints (involuntary choice)53% Preferences (voluntary choice)47% 25

Inefficiency decomposition Inefficiency (35%) voluntary36% involuntary64% 26

Inequality ratios from latent variable scores RCRERFRRFNRR

Estimation results 28

Interpretation of results Size and sign of coefficients Statistical significance 29

Concluding remarks Freedom aspect of a capability can be measured if good indicators are available. Taking a single functioning at a time with all its capability dimensions are more fruitful than aggregating many functionings at a time with a few capability dimensions. There is need to develop an index of each functioning separately with all its capability aspects. 30

Key references Capability measurement Anand, P. et. al. (2005).The Measurement of Human Capabilities. Anand, P., and Hees, M. (2006). Capabilities and achievements: An empirical study, Journal of Socio-Economics, 35, Functioning measurment Kuklys, W. (2005). Amartya Sen’s Capability Approach- Theoretical Insights and Empirical Applications. Springer. Conversion efficiency measurment Binder, M. and Broekel, T. (2008). Conversion efficiency as a complementing measure of welfare in capability space. MPRA. 31