Socio_Related_notes

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Poverty axioms

Poverty Measures to reduce the inequality indices.

Focus : A poverty measure should be independent of the income distribution of the non poor.

Monotonicity: Remaining other things constant, the decrease in a poor person's income should increase the overall poverty level.

Transfer: A progressive transfer from a rich person to a poor person should decrease the poverty measure, and vice-versa.

Decomposability: The poverty index should increase when poverty in a subgroup increases, and vice-versa.

A three-headed hydra ( From The Economist) Economists generally think of three similar, but distinct, metrics of economic disparity: inequality of income, consumption and wealth. In general wealth is the most unequally distributed of the three, consumption the least. In America, for example, the Gini coefficients (a measure of inequality in which 1 represents maximum inequality and 0 a perfectly egalitarian society) are 0.78 for wealth and 0.63 for income, but only 0.40 for consumption.

Income inequality is the most commonly cited measure, primarily because the data on it is the most comprehensive. However, for the purpose of measuring how inequality affects a community it is also probably the least interesting yardstick of the three.Consumption inequality, though harder to measure, provides a better proxy of social welfare. This is because people’s living standards depend on the amount of goods and services they consume, rather than the number of dollars in their wage packet. http://www.economist.com/blogs/freeexchange/2014/07/measuring-inequality

Wealth inequality begets income inequality, which in turn begets consumption inequality. ( WEALTH>>> INCOME>>> CONSUMPTION) So why should we care about which yardstick we use? The yardstick matters when deciding how policy should best respond. Consider, for example, the progressive wealth tax that Mr Piketty promotes in his book. Taxing large family fortunes would surely decrease wealth inequality. However, its impact on consumption inequality is far less clear. While the tax would reduce wealthy households’ income, it would also increase their incentive to consume to avoid the burden of the tax. Thus it is possible the tax may actually increase consumption inequality, at least in the short run.

These policies will have very different, perhaps even diametrically opposite, effects on the two measures on inequality. Thus the way we measure inequality, and the choice as to which we wish to minimise, will have a critical impact on the optimal policy response.

The FAO Method:

Basic methodological framework

In developing the methodology for estimating the prevalence of undernourishment, a basic problem concerns the use of the available energy requirement norms. These norms are usually specified as the average for groups of individuals of the same age, sex, body weight and activity. This means that even after taking into account the most influential factors such as age, sex, body weight and activity, differences exist in the energy requirement of individuals. This variation has been attributed mainly to differences in the efficiency of energy utilization between individuals. As it is not feasible to determine the efficiency of energy utilization of each individual, the departure of the specific energy requirement of an individual from the average is not known

Sukhatme (1961) had taken the cutoff point (minimum energy requirement) as corresponding to the lower limit of the 99 percent confidence

( intervalhttp://www.fao.org/docrep/005/Y4249E/y4249e06.htm )

Weaknesses

It is evident there are several weaknesses that affect the validity of the estimates. These are primarily associated with the fact that the frequency distribution of per capita dietary energy consumption is not based on observed data but is derived using a model whose parameters are estimated on data or measures that are subject to errors of unknown magnitude and direction. However, the derivation of the cutoff point also has certain weaknesses.

Assuming that the distribution model used (log-normal) is correct, the validity of the estimates depends on the reliability of the three elements involved in the estimation process, i.e. the mean (represented by per capita DES), the CV and the cutoff point. Of these, the last is obviously of crucial importance as its location within the range of variation of the consumption distribution directly determines the proportion of the population undernourished. In other words, the result is quite sensitive to the cutoff point. The impacts of the other two elements are through their diverse effects on the consumption distribution.

New changes of FAO Methods here http://www.ictsd.org/bridges-news/bridges-africa/news/assessing-hunger-what-do-the-fao%E2%80%99s-revised-undernourishment-figures

2050

Hunger can persist in the midst of adequate aggregate supplies because of lacking income

opportunities for the poor and the absence of effective social safety nets. Experience of

countries that have succeeded in reducing hunger and malnutrition shows that economic

growth does not automatically ensure success, the source of growth matters too. Growth

originating in agriculture, in particular the smallholder sector, is at least twice as effective in 3

benefiting the poorest as growth from non-agriculture sectors. This is not surprising since 75

percent of the poor in developing countries live in rural areas and their incomes are directly or

indirectly linked to agriculture

Image:

Food demand: Increases expenditure in food with the increasing income. Poor HH expense largest share of their income in food rather than rich HH.