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A Dual-Regime Utility Model for Poverty Analysis

  • Claudia Biancotti

    ()

    (Bank of Italy)

This paper offers a micro-founded general definition of poverty set in the context of utility theory. Poverty and non-poverty are described as two structurally different types of local non-satiation: the former entails a strong need for further consumption and social marginalization, the latter is characterized by a weak need for further consumption and satisfactory adjustment to social expectations. Each of the states can be fully described by a separate technology of utility production. The model is tested on data from the Bank of Italy�s Survey of Household Income and Wealth; an indicator of self-reported economic satisfaction is regressed on yearly consumption of food and non-food commodities. The predictions of the model are confirmed in the case of food consumption, signalling the existence of physiological minima that are uniformly perceived by individuals. For non-food commodities, no significant change of regimes is found: welfare appears to be connected with needs that are less exposed to structural variation, possibly because they are not as urgent or objective as food-related ones.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 603.

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Date of creation: Sep 2006
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Handle: RePEc:bdi:wptemi:td_603_06
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  17. D'Ambrosio, Conchita & Frick, Joachim R., 2004. "Subjective Well-Being and Relative Deprivation: An Empirical Link," IZA Discussion Papers 1351, Institute for the Study of Labor (IZA).
  18. Sen, Amartya, 1983. "Poor, Relatively Speaking," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 153-69, July.
  19. Eswaran, Mukesh & Kotwal, Ashok, 1993. "A theory of real wage growth in LDCs," Journal of Development Economics, Elsevier, vol. 42(2), pages 243-269, December.
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