Short Abstract:

I propose a new implementation of the capabilities framework for the purpose of measuring poverty consistently around the world. I exploit the fuzziness that results from three sources: poverty dimensions, exact specification and data. I approach this in both a bottom-up and and top-down directions in terms of the targeted living standards encapsulated in each capabilities specification.

Long Abstract:

In order to consistently measure poverty around the world we need a well-grounded theory of welfare measurement. The capabilities framework lends itself for this purpose, but needs to be calibrated to specific poverty definitions. This means that we need to constrain it with a set of first principles so that we can derive a specific version of the capabilities framework linked to the specifics of poverty measurement. This does not have to be a one-to-one mapping, and several interpretations/mappings may be (quasi)equally defensible or valid. Our approach to this mapping follows a twofold strategy. I identify what poverty clearly isn’t (so starting from a wealth standpoint, and narrow down the concept of being non-poor as much as possible), and I identify what poverty clearly is (so starting from extreme-bare-bones poverty, an extreme poverty CBN if you will, and then enrich that as much as possible within a first principles framework). What is left between the two thresholds would be a grey area where people may or may not be living in conditions of poverty. Generally, such a theory should have the ability not only to distinguish poor from non-poor but also to compare different levels of poverty conditions. More generally, it should be able to distinguish different levels of welfare conditions across the welfare spectrum. Acknowledging that there is/should be a considerable grey area in any (operational) definition of poverty is an advantage, not a disadvantage. This fuzziness comes from three sides: definition (which exact elements/dimensions should the poverty be covering), specification (to what extend each element should be covered) and data (volatility of prices, non-perfect population data, errors in the household surveys, etc.). This paper develops these ideas to a functional and operational definition of poverty within the capabilities framework that lends itself for empirical application.