Advanced Search
MyIDEAS: Login to save this paper or follow this series

Poverty and Welfare Measurement on the Basis of Prospect Theory

Contents:

Author Info

  • Markus Jäntti
  • Ravi Kanbur
  • Milla Nyyssölä
  • Jukka Pirttilä

Abstract

This paper examines the measurement of social welfare, poverty and inequality taking into account reference-dependence, loss aversion and diminishing sensitivity—aspects emphasized in Prospect Theory—to social welfare measurement. We suggest a new notion of equivalent income, the income level with which the individual would be as well off, evaluated using a standard utility function, as he/she actually is, evaluated with a reference-dependent utility function. We examine the differences between standard poverty and inequality measures based on observed income and measures that are calculated based on equivalent income. These differences are illustrated using household-level panel data from Russia and Vietnam.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-01/cesifo1_wp4095.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4095.

as in new window
Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:ces:ceswps:_4095

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Email:
Web page: http://www.cesifo.de
More information through EDIRC

Related research

Keywords: Prospect Theory; poverty; inequality; welfare measurement; vulnerability;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Gorodnichenko, Yuriy & Peter, Klara Sabirianova & Stolyarov, Dmitriy, 2009. "Inequality and Volatility Moderation in Russia: Evidence from Micro-Level Panel Data on Consumption and Income," IZA Discussion Papers 4233, Institute for the Study of Labor (IZA).
  2. Carlsson, Fredrik & Nam, Pham Khanh & Linde-Rahr, Martin & Martinsson, Peter, 2005. "Are Vietnamese Farmers Concerned with their Relative Position in Society?," Working Papers in Economics, University of Gothenburg, Department of Economics 165, University of Gothenburg, Department of Economics.
  3. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  4. Kanbur, Ravi, 2001. "Economic Policy, Distribution and Poverty: The Nature of Disagreements," World Development, Elsevier, Elsevier, vol. 29(6), pages 1083-1094, June.
  5. Indranil Dutta & James Foster & Ajit Mishra, 2011. "On measuring vulnerability to poverty," Social Choice and Welfare, Springer, Springer, vol. 37(4), pages 743-761, October.
  6. Luna Bellani & Conchita D’Ambrosio, 2011. "Deprivation, Social Exclusion and Subjective Well-Being," Social Indicators Research, Springer, Springer, vol. 104(1), pages 67-86, October.
  7. van Praag, Bernard M. S., 2010. "Well-being Inequality and Reference Groups: An Agenda for New Research," IZA Discussion Papers 4727, Institute for the Study of Labor (IZA).
  8. Ligon, Ethan & Laura Schechter, 2002. "Measuring Vulnerability," Royal Economic Society Annual Conference 2002, Royal Economic Society 128, Royal Economic Society.
  9. Gaiha, Raghav & Imai, Katsushi, 2008. "Measuring Vulnerability and Poverty: Estimates for Rural India," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/40, World Institute for Development Economic Research (UNU-WIDER).
  10. Adam Booij & Bernard Praag & Gijs Kuilen, 2010. "A parametric analysis of prospect theory’s functionals for the general population," Theory and Decision, Springer, Springer, vol. 68(1), pages 115-148, February.
  11. Senik, Claudia, 2004. "When information dominates comparison: Learning from Russian subjective panel data," Journal of Public Economics, Elsevier, Elsevier, vol. 88(9-10), pages 2099-2123, August.
  12. Luc Christiaensen & Anthony Shorrocks, 2012. "Measuring poverty over time," Journal of Economic Inequality, Springer, Springer, vol. 10(2), pages 137-143, June.
  13. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  14. Jalan, Jyotsna & Ravallion, Martin, 1998. "Transient Poverty in Postreform Rural China," Journal of Comparative Economics, Elsevier, vol. 26(2), pages 338-357, June.
  15. Engström, Per & Nordblom, Katarina & Ohlsson, Henry & Persson, Annika, 2011. "Loss evasion and tax aversion," Working Paper Series, Uppsala University, Department of Economics 2011:17, Uppsala University, Department of Economics.
  16. Richard Layard & Guy Mayraz & Stephen Nickell, 2009. "Does Relative Income Matter? Are the Critics Right?," CEP Discussion Papers, Centre for Economic Performance, LSE dp0918, Centre for Economic Performance, LSE.
  17. Stefano Bartolini & Ennio Bilancini & Francesco Sarracino, 2013. "Predicting the Trend of Well-Being in Germany: How Much Do Comparisons, Adaptation and Sociability Matter?," Social Indicators Research, Springer, Springer, vol. 114(2), pages 169-191, November.
  18. Delavande, Adeline & Gine, Xavier & McKenzie, David, 2009. "Measuring Subjective Expectations in Developing Countries: A Critical Review and New Evidence," Policy Research Working Paper Series 4824, The World Bank.
  19. Graham, Carol & Eggers, Andrew & Sukhtankar, Sandip, 2004. "Does happiness pay?: An exploration based on panel data from Russia," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 55(3), pages 319-342, November.
  20. Cesar Calvo & Stefan Dercon, 2005. "Measuring Individual Vulnerability," Economics Series Working Papers, University of Oxford, Department of Economics 229, University of Oxford, Department of Economics.
  21. Rafael Di Tella & John Haisken-De New & Robert MacCulloch, 2007. "Happiness Adaptation to Income and to Status in an Individual Panel," NBER Working Papers 13159, National Bureau of Economic Research, Inc.
  22. Channing Arndt & Andres Garcia & Finn Tarp & James Thurlow, 2010. "Poverty Reduction and Economic Structure Comparative Path Analysis for Mozambique and Vietnam," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) wp2010-122, World Institute for Development Economic Research (UNU-WIDER).
  23. Cesar Calvo & Stefan Dercon, 2007. "Chronic Poverty and All That: The Measurement of Poverty over Time," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2007-04, University of Oxford, Department of Economics.
  24. Shorrocks, Anthony, 1978. "Income inequality and income mobility," Journal of Economic Theory, Elsevier, Elsevier, vol. 19(2), pages 376-393, December.
  25. Sen, Amartya K, 1976. "Poverty: An Ordinal Approach to Measurement," Econometrica, Econometric Society, Econometric Society, vol. 44(2), pages 219-31, March.
  26. Kaushik Basu & Patrick Nolen, 2006. "Vulnerability, Unemployment and Poverty: A Class of Distribution and Sensitive Measures, Its Axiomatic Properties and Applications," Economics Discussion Papers, University of Essex, Department of Economics 623, University of Essex, Department of Economics.
  27. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, Springer, vol. 5(4), pages 297-323, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jantti, Markus & Jenkins, Stephen P., 2013. "Income mobility," ISER Working Paper Series 2013-23, Institute for Social and Economic Research.
  2. Markus Jäntti & Stephen P. Jenkins, 2013. "Income Mobility," SOEPpapers on Multidisciplinary Panel Data Research 607, DIW Berlin, The German Socio-Economic Panel (SOEP).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_4095. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.