Review questions L2 Flashcards
- Please give some reasons why food only constitutes about ½ to ¾ of the total consumption expenditure for the extremely poor people in the world.
Generally food constitutes for a large share of the total consumption, but not all of it. There is a tendency to use a relative large part (compared to in OECD / high income countries) on entertainment, celebrations and events, such as weddings, festivals, or funerals, in regards to tradition and/or religion. This is attributed to a network effect and a need to be a part of social settings. In this way poverty patterns are very culture based. Some of the consumption, but actually relatively little, is also used on non-food items, as clothes and shelter, or alcohol, tobacco and durables.
One may ask why the extremely poor dont just consume more/better food (as we see they have the ability to when they are able to save for other occations), but the marginal gain from more/better food is not enough/sufficient to give them better lives.
- Please give some reasons why the extremely poor people in the world are often involved in many occupations
The extremely poor often lack education, hence specialization, and capital, why it is easier to to be employed in several low skill jobs, to cover their consumption and/or living costs. Small scale entrepreneurs. Additionally some job are seasonally based, so it is necessary to take multiple jobs to ensure a relatively steady income year-round.
- Please explain the referencing problem in theoretical poverty analyses and explain how the referencing is “solved” in practice using the cost-of-basic-needs method
The referencing problem relates to the issue of finding a realistic threshold for the poverty line. This challenge is solved by the cost-of-basic-needs method, where you
1. define a nutritional requirement for good health.
2. estimate the cost of consuming this energy requirement, using a food consumption bundle that reflects habits of HHs near the nutritional rewuirement, that is constructing a food component. This is the food poverty line b^f.
3. then add (construct) a non-food component, b^n (based on Engel curve regression) .
4. The overall poverty line is then the sum: z = b^f + b^n
- Please explain the identification problem in theoretical poverty analyses and explain how the problem is “solved” in practice in most poverty measurements developing countries.
The identification problem concerns the fact that we have very little data on individual consumption. The reasons why this data is hard to obtain is
1. we knoe very litte about intra-HH allocation (who gets what)
2. children often consume less than adults
3. HHs have economies of scale in consumption, that is cost advantages when the HHsize increases.
In practice the problem is solved by using equivalence scales, such as adult equivalence in a HH (typically children and women count for less than 1 adult). Or it is sovled by simply dividing the HH consumption or income by the number of people in a HH to obtain per capita measures.
- Explain the concepts strongly relative versus weakly relative poverty lines and describe the problems with each respective measure. Outline a possible solution to the problems
The strongly relative poverty line is set at a constant proportion of the current median or average (income) for the country: z^R=k*y(m). The comparison group is often the median or average, m.
The weakly poverty line is z^R=z^A + ß(m-z^A). This incorporates both the absolute and relative aspects of poverty, and the measure will never fall below the absolute line.
Adjusts to changes in the median at a slower rate than what the strongly relative does.
Theory (Ravallion) suggets a hybrid line, aka absolute + relative poverty line. In this case, the median is larger than the absolute poverty, m > z^A. This hybrid solution includes a parameter, alpha, that can be interpreted as the lower bound to social inclusion needs.
