Poverty Method Presentation

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Poverty Method Presentation

• SW24C
• Dr. Warren Benfield
• 6/2/07

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Poverty

• The concept of absolute poverty dates back to
  Rowntree (1901), and later Orshansky (1965), and
  refers to subsistence below minimum,
  socially-acceptable living conditions.
• Most of the poverty studies in developing
  countries use absolute poverty lines.
• An individual or household in Jamaica is
  considered poor if unable to attain a level of
  real consumption expenditure above an appropriate
  poverty line.

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Why Poverty Measurement?

• Adequate identification of the poor and accurate
  measurement of poverty are crucial to the
  formulation of adequately targeted poverty
  reduction efforts.
• Public and Private
• Public poverty refers to the extent to which an
  individual or household can access and consume
  the set of goods and services normally supplied
  socially (Poverty Map, PIOJ).

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WHY CONSUMPTION?

• The focus on consumption is consistent with the
  theoretical perspective that utility from
  consumption of goods and services is the basic
  objective of both citizen and society, and is the
  best indicator of individual and social welfare.
  
• The alternative to consumption - income, but
  consumption is preferred because it is more
  stable over time. It is argued that households
  usually can, and tend to smooth consumption over
  time, unlike income that fluctuates.

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Why Consumption?

• Consumption is also preferred to income because
  it can be measured more accurately.
• Most are unwilling to report their incomes
  accurately, for reasons such as their tax,
  liability, or simply because they do not want
  others to know their income levels (World Bank,
  1994104).

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STANDARDS

• There are various standards that can be used to
  measure poverty. - Food energy intake vs Basic
  needs method
• The poverty line is composed of a basket of food
  and non-food items.
• The food component was determined by nutrition
  and medical personnel from the Ministry of Health
  (MOH), assisted with data from the Statistical
  Institute of Jamaica and the Planning Institute
  of Jamaica.

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FOOD BASKET

• To determine the minimum food basket, the MOH
  relied on the Pan American Health Organisation
  (PAHO) and the World Health Organisation (WHO)
  recommended minimum nutritional requirements of
  11 225 Kilocalories (K/cals.) for the members of
  a reference family of five - male adult, female
  adult, and three children of different ages.

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FOOD BASKET cont.

• The MOH also relied on dietary surveys to
  determine the representative consumption patterns
  of households in consumption quintiles 1 and 2

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FOOD BSAKET cont.

• On the basis of these surveys, a representative
  food basket (with respect to food items) was
  developed to take into account minimum household
  needs for energy, calcium, protein and iron.
• The basket was further modified to include as
  much as possible of the lowest cost food items
  without compromising the dietary requirements.

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FOOD BASKET cont.

• The food basket can be seen as the first standard
  in the derivation of the poverty line, and is
  used to count the food poor.

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NON-FOOD STANDARD

• The second standard is the general poverty line
  is an amount representing the cost of basic
  non-food items such as clothing and footwear,
  transportation, health care and personal
  expenses, and education, among others.

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NONFOOD EXPENDITURE

• .

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Alternative poverty lines

• Food Energy Intake Method
• Basic Needs Method

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POERTY LINE

• Individuals whose consumption expenditure is at
  or below the poverty line are considered poor
  (the per adult equivalent consumption expenditure
  is compared with the per adult equivalent poverty
  line).
• How is the line updated over time?

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HEAD COUNT INDEX
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POVERTY GAP INDEX

• 1 The general class of FGT measures can be
  written as The headcount index (H), poverty gap
  (PG) and the distributional sensitive (SPG)
  measures are obtained when ? 0, 1, and 2
  respectively.

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TREND IN POVERTY

• FIGURE 1

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Poverty incidence curves Stochastic Dominance
analysis
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Profile cont.

• Correlates of poverty
• Relative poverty rates by Heads sector of
  employment, schooling level, gender etc.
• Urban vs Rural incidence
• Children, elderly and other groups

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Multivariate Analysis of Determinants of Well
Being

• Regression analysis to isolate impact of
  individual household characteristics on welfare
• Consi c BI XI B2 X2 .. ui
• Xs are characteristics such as schooling,
  demographics, region, employment, etc
• Bs are returns to those characteristics
• How have X and B changed over time?

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Characteristics of Poor

• Change in Bs due to environment and economy
• Different characteristics rewarded differently
• Change in Xs due to households response
• Changes in schooling, household size, employment
  sector

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Subjective Poverty

• Applied mainly in developed countries, subjective
  poverty thresholds are derived by asking
  respondents to specify a minimum necessary income
  or to evaluate various income levels.
• Participatory poverty assessment.
• This method can shed light on the extent to which
  objective thresholds are in agreement with
  individuals perception of their well-being.

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Subjective Poverty

• Self-reported well-being is thought to be
  influenced by at least four factors namely
• - circumstances
• - aspirations
• - comparisons with others
• - personality traits or disposition
• (Frijters, et al. 2001 Ravallion and Lokshin,
  2000 Lokshin and Ravallion, 2002).
• Unemployment

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Subjective Poverty

• Minimum Income Question

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Subjective Poverty

• MSR

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Subjective Poverty

• Obviously, adopting a broader concept of poverty
  leads to a more complex view, as well as, the
  need to resolve discrepancies between types of
  assessment.
• - Studies Robb (199923), Bevan and Joireman
  (1997), Carvalho and White (1997) and Sahn,
  (1999).

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Subjective and Objective Poverty
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Subjective Poverty
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Targeting the Poor

• According to Haddad and Kanbur (1991b1), the
  literature on targeting dates from Akerlof
  (1978), and is concerned with the design of tax
  and transfer mechanisms for poverty alleviation
  in the presence of limited information on who the
  poor are.

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Targeting the Poor

• Van de Walle (1998) identifies two approaches to
  raising the standard of living of the poor
  through public spending. The first involves
  targeting types of spending broad targeting
  while the second approach entails targeting
  categories of people narrow targeting.

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Targeting the Poor

• The mechanisms through which targeting is
  implemented
• income or means testing,
• household self-selection,
• geographic targeting
• indicator targeting
• community selection, or community-based targeting
  and is common in social fund projects

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Targeting the Poor

• Targeting errors
• Type ? An error of exclusion, relates to the
  failure of the programme to reach all of the
  poor.
• Type ? ? An error of inclusion, or leakage,
  occurs when non-targeted HHs receive part of the
  benefits.
• There is a trade off between these two errors. -
  As targeting efforts become increasingly
  restrictive, more of the non-poor are excluded
  but so too are the poor.

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Targeting the Poor

• The political power structure within a country,
  as well as, the interests of different agents
  involved in administering a benefit programme
  will also impact on how precisely transfers are
  targeted and implemented and outcomes. The poor
  possess little political clout and forming
  coalitions with more influential groups may be
  difficult. As a result, extremely fine targeting
  may undermine the political support a programme
  receives and, therefore, its budgetary
  allocations.

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Targeting the Poor - Stigma

• Households may not participate in a finely
  targeted programme (Besley and Kanbur 1993)
  because of the cost to them of subjecting
  themselves to detailed assessment, or because of
  the stigma of participating in programmes
  intended specifically for the poor.

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Targeting the Poor

• Other possible negative outcomes associated with
  targeting are distortions of the labour-leisure
  choice, migration to advantaged areas, giving
  some recipients more than they require to reach
  the poverty line (over-funding), and the
  unproductive use of resources or time (Lundberg
  and Diskin (1995).
• Ravallion (2000) argues that leakage of benefits
  to non-target groups and adverse incentive
  effects on labour supply and savings may create a
  serious trade off against efficiency and growth,
  which themselves are crucial to rapid poverty
  reduction.

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Targeting the Poor

• The relationship between the fineness of
  targeting and the proportion of the programme
  budget allocated for administrative costs is put
  forward by several authors. Besley and Kanbur
  (1993) write that administrative costs, as a
  proportion of a programme budget rises
  increasingly as the fineness of targeting
  improves.

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Targeting the Poor

• The literature also points to the likelihood that
  targeted programmes may crowd out informal social
  safety nets (Devereux, 2002 Grosh, 199418)

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Pro-poor Growth