Weeks 9-10
Measurement of individual poverty
Intro
Challenges to measurement
• Household purchases, but not individual consumption can be observed
• Economies of scale in household consumption and some can be shared
If there were no economies of scale and consumption ⫫ household structure then individual
consumption can be recovered from household data
How individual poverty is measured
• Household income/ expenditure is divided by the number of household members for a per capita
measure of resources
• This acts as a poverty line, so households with income per capita below this are poor
◦ This line can be scaled so that it is needs corrected, eg. a child needs less, however this is
ad hoc
• This can be used on an individual level or household level
◦ Measuring individual poverty from household level data assumes equal distribution within
households, causing underestimation of poverty
If povertylineplcis 1.90perday
household
plyfora
2081 of
it Peryear
Outcome
2081 H.n.isinpoverty
Household
of
Individual isn'tinpoverty
Theman
T N
shadowbudgets
T
Measuring individual poverty
• First theorem of welfare economics: under certain conditions, any competitive equilibrium leads to
a Pareto e cient allocation of resources
• Second theorem of welfare economics: any e cient allocation can be obtained as a competitive
equilibrium
The households problem is equivalent to decentralised maximisation of each individual’s utility
function subject to their shadow budget constraint, then the household purchases the ∑ of these
quantities adjusted for economies of scale
Measurement of individual poverty
Intro
Challenges to measurement
• Household purchases, but not individual consumption can be observed
• Economies of scale in household consumption and some can be shared
If there were no economies of scale and consumption ⫫ household structure then individual
consumption can be recovered from household data
How individual poverty is measured
• Household income/ expenditure is divided by the number of household members for a per capita
measure of resources
• This acts as a poverty line, so households with income per capita below this are poor
◦ This line can be scaled so that it is needs corrected, eg. a child needs less, however this is
ad hoc
• This can be used on an individual level or household level
◦ Measuring individual poverty from household level data assumes equal distribution within
households, causing underestimation of poverty
If povertylineplcis 1.90perday
household
plyfora
2081 of
it Peryear
Outcome
2081 H.n.isinpoverty
Household
of
Individual isn'tinpoverty
Theman
T N
shadowbudgets
T
Measuring individual poverty
• First theorem of welfare economics: under certain conditions, any competitive equilibrium leads to
a Pareto e cient allocation of resources
• Second theorem of welfare economics: any e cient allocation can be obtained as a competitive
equilibrium
The households problem is equivalent to decentralised maximisation of each individual’s utility
function subject to their shadow budget constraint, then the household purchases the ∑ of these
quantities adjusted for economies of scale
