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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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  1. Conchita D'Ambrosio & Joachim R. Frick, 2004. "Subjective Well-Being and Relative Deprivation: An Empirical Link," Discussion Papers of DIW Berlin 449, DIW Berlin, German Institute for Economic Research.
  2. Orsolya Lelkes, 2005. "Knowing what is good for you. Empirical analysis of personal preferences and the “objective good”," Others 0502008, EconWPA.
  3. Sen, Amartya K, 1976. "Poverty: An Ordinal Approach to Measurement," Econometrica, Econometric Society, vol. 44(2), pages 219-31, March.
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  6. Ravallion, Martin, 1996. "Issues in Measuring and Modelling Poverty," Economic Journal, Royal Economic Society, vol. 106(438), pages 1328-43, September.
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  11. A. Atkinson, 2003. "Multidimensional Deprivation: Contrasting Social Welfare and Counting Approaches," Journal of Economic Inequality, Springer, vol. 1(1), pages 51-65, April.
  12. 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.
  13. Garner, Thesia I & de Vos, Klaas, 1995. "Income Sufficiency v. Poverty: Results from the United States and the Netherlands," Journal of Population Economics, Springer, vol. 8(2), pages 117-34, May.
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  15. G. Rossini & P. Zanghieri, 2002. "the EU and the enlarged EU," Working Papers 438, Dipartimento Scienze Economiche, Universita' di Bologna.
  16. Claudia Biancotti & Giovanni D'Alessio & Andrea Neri, 2008. "Measurement Error In The Bank Of Italy'S Survey Of Household Income And Wealth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(3), pages 466-493, 09.
  17. Stutzer, Alois, 2004. "The role of income aspirations in individual happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 89-109, May.
  18. Sen, Amartya, 1983. "Poor, Relatively Speaking," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 153-69, July.
  19. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
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