Document(s) 3 of 20

The assessment of well-being for poverty analysis is traditionally characterized according to two main approaches, which, following Ravallion (1994), we will term the welfarist and the non-welfarist approaches. The first approach tends to concentrate in practice mainly on comparisons of "economic well-being", which we will also call "standard of living" or "income" (for short). As we will see, this approach has strong links with traditional economic theory, and it is also widely used by economists in the operations and research work of organizations such as the World Bank, the International Monetary Fund, and Ministries of Finance and Planning of both developed and developing countries. The second approach has historically been advocated mainly by social scientists other than economists and partly in reaction to the first approach. This second approach has nevertheless also been recently and increasingly advocated by economists and non-economists alike as a multidimensional complement to the unidimensional standard of living approach.

1.1 The welfarist approach

The welfarist approach is strongly anchored in classical micro-economics, where, in the language of economics, "welfare" or "utility" are generally key in accounting for the behavior and the well-being of individuals. Classical microeconomics usually postulates that individuals are rational and that they can be presumed to be the best judges of the sort of life and activities which maximize their utility and happiness. Given their initial endowments (including time, land, and physical, financial and human capital), individuals make production and consumption choices using their set of preferences over bundles of consumption and production activities, and taking into account the available production technology and the consumer and producer prices that prevail in the economy.

Under these assumptions and constraints, a process of individual and rational free choice will maximize the individuals' utility; under additional assumptions (including that markets are competitive, that agents have perfect information, and that there are no externalities — assumptions that are thus restrictive), a society of individuals all acting independently under this freedom of choice process will also lead to an outcome known as Pareto -efficient, in that no one's utility could be further improved by government intervention without decreasing someone else's utility.

Underlying the welfarist approach to poverty, there is a premise that good note should be taken of the information revealed by individual behavior when it comes to assessing poverty. More precisely, the assessment of someone's well-being should be consistent with the ordering of preferences revealed by that person's free choices. For instance, a person could be observed to be poor by the total consumption or income standard of a poverty analyst. That same person could nevertheless be able (i.e., have the working capacity) to be non-poor. This could be revealed by the observation of a deliberate and free choice on the part of the individual to work and consume little, when the capability to work and consume more nevertheless exists. By choosing to spend little (possibly for the benefit of greater leisure), the person reveals that he is happier than if he worked and spent more. Although he could be considered poor by the standard of a (non-welfarist) poverty analyst, a comprehensive utility judgement would conclude that this person is not poor. As we will discuss later, this can have important implications for the design and the assessment of public policy.

A pure welfarist approach faces important practical problems. To be operational, pure welfarism requires the observation of sufficiently informative revealed preferences. For instance, for someone to be declared poor or not poor, it is not enough to know that person's current characteristics and income status: it must also be inferred from that person's actions whether he judges his utility status to be above a certain poverty utility level.

A related problem with the pure welfarist approach is the need to assess levels of utility or "psychic happiness". How are we to measure the actual pleasure derived from experiencing economic well-being? Moreover, it is highly problematic to attempt to compare that level of utility across individuals — it is well known that such a procedure poses serious ethical difficulties, preferences are heterogeneous, personal characteristics, needs and enjoyment abilities are diverse, households differ in size and composition, and prices vary across time and space. More generally, because economic well-being (in particular, utility) is typically seen as a subjective concept, most economists believe that interpersonal comparisons of economic well-being do not make much sense.

Supposing that these criticisms are resolved, the welfarist approach would classify as poor an individual who is materially well-off but not content, and as not poor an individual materially deprived but nevertheless content. It is not clear that we should accept as ethically significant such individual feelings of utilities. Said differently, why should a difficult-to-satisfy rich person be judged less well-off than an easily-contented poor person? Or, in the words of Sen (1983), p. 160, why should a "grumbling rich" be judged "poorer" than a "contented peasant"?

Hence, welfarist comparisons of poverty almost invariably use imperfect but objectively observable proxies for utilities, such as income or consumption. The "working" definition of poverty for the welfarist approach is therefore a lack of command over commodities, measured by low income or consumption. These money-metric indicators are often adjusted for differences in needs, prices, and household sizes and compositions, but they clearly represent far-from-perfect indicators of utility and well-being. Indeed, economic theory tells us little about how to use consumption or income to make consistent interpersonal comparisons of well-being. Besides, the consumption and income proxies are rarely able to take full account of the role for well-being of public goods and non-market commodities, such as safety, liberty, peace, health. In principle, such commodities can be valued using reference or "shadow" prices. In practice, this is difficult to do accurately and consistently.

1.2 Non-welfarist approaches

1.2.1 Basic needs and functionings

There are two major non-welfarist approaches, the basic-needs approach and the capability approach. The first focuses on the need to attain some basic multidimensional outcomes that can be observed and monitored relatively easily. These outcomes are usually (explicitly or implicitly) linked with the concept of functionings, a concept largely developed in Amartya Sen's influential work:

Living may be seen as consisting of a set of interrelated 'functionings', consisting of beings and doings. A person's achievement in this respect can be seen as the vector of his or her functionings. The relevant functionings can vary from such elementary things as being adequately nourished, being in good health, avoiding escapable morbidity and premature mortality, etc., to more complex achievements such as being happy, having self-respect, taking part in the life of the community, and so on (Sen 1992, p.39).

In this view, functionings can be understood to be constitutive elements of well-being. One lives well if he enjoys a sufficiently large level of functionings. The functioning approach would generally not attempt to compress these multidimensional elements into a single dimension such as utility or happiness. Utility or happiness is viewed as a reductive aggregate of functionings, which are multidimensional in nature. The functioning approach usually focuses instead on the attainment of multiple specific and separate outcomes, such as the enjoyment of a particular type of commodity consumption, being healthy, literate, well-clothed, well-housed, socially empowered, etc..

The functioning approach is closely linked to the well-known basic needs approach, and the two are often difficult to distinguish in practice. Functionings, however, are not synonymous with basic needs. Basic needs can be understood as the physical inputs that are usually required for individuals to achieve functionings. Hence, basic needs are usually defined in terms of means rather than outcomes, for instance, as living in the proximity of providers of health care services (but not necessarily being in good health), as the number of years of achieved schooling (but not necessarily being literate), as living in a democracy (but not necessarily participating in the life of the community), and so on. In other words,

Basic needs may be interpreted in terms of minimum specified quantities of such things as food, shelter, water and sanitation that are necessary to prevent ill health, undernourishment and the like (Streeten, Burki, Ul Haq, Hicks, and Stewart 1981).

Unlike functionings, which can be commonly defined for all individuals, the specification of basic needs depends on the characteristics of individuals and of the societies in which they live. For instance, the basic commodities required for someone to be in good health and not to be undernourished will depend on the climate and on the physiological characteristics of individuals. Similarly, the clothes necessary for one not to feel ashamed will depend on the norms of the society in which he lives, and the means necessary to travel, on whether he is handicapped or not. Hence, although the fulfillment of basic needs is an important element in assessing whether someone has achieved some functionings, this assessment must also use information on one's characteristics and socio-economic environment. Human diversity is such that equality in the space of basic needs generally translates into inequality in the space in functionings.

Whether unidimensional or multidimensional in nature, most applications of both the welfarist and the non-welfarist approaches to poverty measurement do recognize the role of heterogeneity in characteristics and in socio-economic environments in achieving well-being. Streeten, Burki, UI Haq, Hicks, and Stewart (1981) and others have nevertheless argued that the basic needs approach is less abstract than the welfarist approach in recognizing that role. Indeed, as mentioned above, assessing the fulfillment of basic needs can be seen as a useful practical and operational step towards appraising the achievement of the more abstract "functionings".

Clearly, however, there are important degrees in the multidimensional achievements of basic needs and functionings. For instance, what does it mean precisely to be "adequately nourished"? Which degree of nutritional adequacy is relevant for poverty assessment? Should the means needed for adequate nutritional functioning only allow for the simplest possible diet and for highest nutritional efficiency? These problems also crop up in the estima­tion of poverty lines in the welfarist approach. A multidimensional approach extends them to several dimensions.

In addition, how ought we to understand such functionings as the functioning of self-respect? The appropriate width and depth of the concept of basic needs and functionings is admittedly ambiguous, as there are degrees of functionings which make life enjoyable in addition to making it purely sustainable or satisfactory. Furthermore, could some of the dimensions be substitutes in the attainment of a given degree of well-being? That is, could it be that one could do with lower needs and functionings in some dimensions if he has high achievements in the other dimensions? Such possibilities of substitutability are generally ignored (and are indeed hard to specify precisely) in the multidimensional non-welfarist approaches.

1.2.2 Capabilities

A second alternative to the welfarist approach is called the capability approach, also pioneered and advocated in the last three decades by the work of Sen. The capability approach is defined by the capacity to achieve functionings, as defined above. In Sen (1992)'s words,

the capability to function represents the various combinations of functionings (beings and doings) that the person can achieve. Capability is, thus, a set of vectors of functionings, reflecting the person's freedom to lead one type of life or another, (p.40)

What matters for the capability approach is the ability of an individual to function well in society; it is not the functionings actually achieved by the person per se. Having the capability to achieve "basic" functionings is the source of freedom to live well, and is thereby sufficient in the capability approach for one not to be poor or deprived.

The capability approach thus distances itself from achievements of specific outcomes or functionings. In this, it imparts considerable value to freedom of choice: a person will not be judged poor even if he chooses not to achieve some functionings, so long as he would be able to achieve them if he so chose. This distinction between outcomes and the capability to achieve these outcomes also recognizes the importance of preference diversity and individuality in determining functioning choices. It is, for instance, not everyone's wish to be well-clothed or to participate in society, even if the capability is present.

An interesting example of the distinction between fulfilment of basic needs, functioning achievement and capability is given in Townsend (1979)'s (Table 6.3) deprivation index. This deprivation index is built from answers to questions such as whether someone "has not had an afternoon or evening out for entertainment in the last two weeks", or "has not had a cooked breakfast most days of the week". It may be, however, that one chooses deliberately not to have time out for entertainment (he prefers to watch television), or that he chooses not to have a cooked breakfast (he does not want to spend the time to prepare it), although he does have the capacity to have both. That person therefore achieves the functioning of being entertained without meeting the basic need of going out once a fortnight, and he does have the capacity to achieve the functioning of having a cooked breakfast, although he chooses not to have one.

The difference between the capability and the functioning/basic needs approaches is in fact somewhat analogous to the difference between the use of income and consumption as indicators of living standards. Income shows the capability to consume, and "consumption functioning" can be understood as the outcome of the exercise of that capability. There is consumption only if a person chooses to enact his capacity to consume a given income. In the basic needs and functioning approach, deprivation comes from a lack of direct consumption or functioning experience; in the capability approach, poverty arises from the lack of incomes and capabilities, which are imperfectly related to the functionings actually achieved.

Although the capability set is multidimensional, it thus exhibits a parallel with the unidimensional income indicator, whose size determines the size of the "budget set":

Just as the so-called 'budget set' in the commodity space represents a person's freedom to buy commodity bundles, the 'capability set' in the functioning space reflects the person's freedom to choose from possible livings (Sen 1992, p. 40).

This shows further the fundamental distinction between the extents of freedoms and capabilities, the space of achievements, and the resources required to generate these freedoms and to attain these achievements.

1.3 A graphical illustration

To illustrate the relationships between the main approaches to assessing poverty, consider Figure 1.1. Figure 1.1. shows in four quadrants the links between income, consumption of two goods — transportation T and clothing C goods — and the functionings associated to the consumption of each of these two goods. The northeast quadrant shows a typical budget set for the two goods and for a budget constraint Y1. The curve U1 shows the utility indifference curve along which the consumer chooses his preferred commodity bundle, which is here located at point A.

The northwestern and the southeastern quadrants then transform the consumption of goods T and C into associated functionings F_T and F_C. This is done through the functioning Transformation Curves TC_T and TC_C, for transformation of consumption of T and C into transportation and clothing functionings, respectively. The curves TC_T and TC_C appear respectively in the northwest and the southeast quadrants respectively. These curves thus bring us from the northeastern space of commodities, , into the southwestern space of functionings, . Using these transformation functions, we can draw a budget constraint S1 in the space of functionings using the traditional commodity budget constraint, Y1. Since the consumer chooses point A in the space of commodities, he enjoys B's combination of functionings. But all of the functionings within the constraint S1 can also be attained by the consumer. The triangular area between the origin and the line S1 thus represents the individual's capability set. It is the set of functionings which he is able to achieve.

Now assume that functioning thresholds of z_C and z_T must be exceeded (or must be potentially exceeded) for one not to be considered poor by non- wel-farist analysts. Given the transformation functions TC_T and TC_F, a budget constraint Y1 makes the individual capable of not being poor in the functioning space. But this does not guarantee that the individual will choose a combination of functionings that will exceed z_C and z_T: this also depends on the individual's preferences. At point A, the functionings achieved are above the minimum functioning thresholds fixed in each dimension. Other points within the capability set would also surpass the functioning thresholds: these points are shown in the shaded triangle to the northeast of point B. Since part of the capability set allows the individual to be non-poor in the space of functionings, the capability approach would also declare the individual not to be poor.

So would conclude, too, the functioning approach since the individual chooses functionings above z_C and z_T. Such a concordance between the two approaches does not always prevail, however. To see this, consider Figure 1.2. The commodity budget set and the functioning Transformation Curves have not changed, so that the capability set has not changed either. But there has a been a shift of preferences from U1 to U2, so that the individual now prefers point D to point A, and also prefers to consume less clothing than before. This makes his preferences for functionings to be located at point E, thus failing to exceed the minimum clothing functioning z_C required. Hence, the person would be considered non-poor by the capability approach, but poor by the functioning approach. Whether an individual with preferences U2 is really poorer than one with preferences U1 is debatable, of course, since the two have exactly the same "opportunity sets", that is, have access to exactly the same commodity and capability sets.

An important allowance in the capability approach is that two persons with the same commodity budget set can face different capability sets. This is illustrated in Figure 1.3, where the functioning Transformation Curve for transportation has shifted from TC_T to . This may due to the presence of a handicap, which makes it more costly in transportation expenses to generate a given level of transportation functioning (disabled persons would need to expend more to go from one place to another). This shift of the TC_T curve moves the capability constraint to S1' and thus contracts the capability set.

Figure 1.1.: Capabilities, achievements and consumption

Figure 1.2.: Capabilities and achievements under varying preferences

With the handicap, there is no point within the new capability set that would surpass both functioning thresholds z_C and z_T. Hence, the person is deemed poor by the capability approach and (necessarily so) by the functioning approach. Whether the welfarist approach would also declare the person to be poor would depend on whether it takes into account the differences in needs implied by the difference between the TC_T and the curves.

For the welfarist approach to be reasonably consistent with the functioning and capability approaches, it is thus essential to consider the role of transformation functions such as the TC curves. If this is done, we may (in our simple illustration at least) assess a person's capability status either in the commodity or in the functioning space.

To see this, consider Figure 1.4. Figure 1.4 is the same as Figure 1.1 except for the addition of the commodity budget constraint Y2 which shows the minimum consumption level needed for one not to be poor according to the capability approach. According to the capability approach, the capability set must contain at least one combination of functionings above z_C and z_T, and this condition is just met by the capability constraint S2 that is associated with the commodity budget Y2. Hence, to know whether someone is poor according to the capability approach, we may simply check whether his commodity budget constraint lies below Y2.

Even if the actual commodity budget constraint lies above Y2, the individual may well choose a point outside the non-poor functioning set, as we discussed above in the context of Figure 1.2. Clearly then, the minimum total consumption needed for one to be non-poor according to the functioning or basic needs approach generally exceeds the minimum total consumption needed for one to be non poor according to the capability approach. More problematically, this minimum total consumption depends in principle on the preferences of the individuals. On Figure 1.2, for instance, we saw that the individual with preference U2 was considered poor by the functioning approach, although another individual with the same budget and capability sets but with preferences U1 was considered non-poor by the same approach.

1.3.1 Exercises

1. Show on a figure such as Figure 1.1 the impact of an increase in the price of the transportation commodity on the commodity budget constraint and on the capability constraint.
   
   
2. On a figure such as Figure 1.4, show the minimal commodity budget set that ensures that the person
   
   
   1. is just able to attain one of the two minimum levels of functionings z_C or z_T;
      
   2. chooses a combination of functionings such that one of them exceeds the corresponding minimum level of functionings z_C or z_T;
      
   3. is just able to attain both minimum levels of functionings z_C and z_T;
      
   4. chooses a combination of functionings such that both exceed the corresponding minimum level of functionings z_C and z_T.
      
   5. How do these four minimal commodity budget constraints compare to each other? Which one corresponds to the different approaches to assessing poverty seen above?

1.4 Practical measurement difficulties for the non-welfarist approaches

The measurement of capabilities raises various problems. Unless a person chooses to enact them in the form of functioning achievements, capabilities are not easily inferred. Achievement of all basic functionings implies non-deprivation in the space of all capabilities; but a failure to achieve all basic functionings does not imply capability deprivation. This makes the monitoring of functioning and basic needs an imperfect tool for the assessment of capability deprivation.

Besides, and as for basic needs, there are clearly degrees of capabilities, some basic and some deeper. It would seem improbable that true well-being be a discontinuous function of achievements and capabilities. For most of the functionings assessed empirically, there are indeed degrees of achievements, such as for being healthy, literate, living without shame, etc... It would seem important to think of varying degrees of well-being in assessing and comparing achievements and capabilities, and not only to record dichotomic 0/1 answers to multidimensional qualitative criteria.

The multidimensional nature of the non-welfarist approaches also raises problems of comparability across dimensions. How should we assess adequately the well-being of someone who has the capability to achieve two functionings out of three, but not the third? Is that person necessarily "better off" than someone who can achieve only one, or even none of them? Are all capabilities of equal importance when we assess well-being?

The multidimensionality of the non-welfarist criteria also translates into greater implementation difficulties than for the usual proxy indicators of the welfarist approach. In the welfarist approach, the size of the multidimensional budget set is ordinarily summarized by income or total consumption, which can be thought of as a unidimensional indicator of freedom. Although there are many different combinations of consumption and functionings that are compatible with a unidimensional money-metric poverty threshold, the welfarist approach will generally not impose multidimensional thresholds. For instance, the welfarist approach will usually not require for one not to be poor that both food and non-food expenditures be larger than their respective food and non-food poverty lines. A similar transformation into a unidimensional indicator is more difficult with the capability and basic needs approaches.

One possible solution to this comparability problem is to use "efficiency-income units reflecting command over capabilities rather than command over goods and services" (Sen 1985, p.343), as we illustrated above when discussing Figure 1.4. This, however, is practically difficult to do, since command over many capabilities is hard to translate in terms of a single indicator, and since the "budget units" are hardly comparable across functionings such as well-nourishment, literacy, feeling self-respect, and taking part in the life of the community. On Figure 1.4, anyone with an income below Y2 would be judged capability-poor. But by how much does poverty vary among these capability-poor? A natural measure would be a function of the budget constraint. It is more difficult to make such measurements and comparisons within the non-money-metric capability set.

Figure 1.3.: Capability sets and achievement failures

Figure 1.4.: Minimum consumption needed to escape capability poverty

1.5 Poverty measurement and public policy

1.5.1 Poverty measurement matters

The measurement of well-being and poverty plays a central role in the discussion of public policy. It is used, among other things, to identify the poor and the non-poor, to design optimal poverty targeting schemes, to estimate the errors of exclusion and inclusion in the targeting set (also known as Type I and Type II errors), and to assess the equity of poverty alleviation policies. Is growth "pro-poor"? How do indirect taxes and relative price changes affect the poor? What should the target groups be for socially-improving government interventions? What impact do transfers have on poverty? Is it the poorest of the poor who benefit most from public policy?

An important example of the central role of poverty measurement in the setting of public policy is the optimal selection of safety net targeting indicators. The theory of optimal targeting suggests that it will commonly be best to target individuals on the basis of indicators that are as easily observable and as exogenous as possible, while being as correlated as possible with the true poverty status of the individuals. Indicators that are not readily observable by program administrators are of little practical value. Indicators that can be changed effortlessly by individuals will be distorted by the presence of the program, and will lose their poverty-informative value. Whether easily observable and sufficiently exogenous indicators are sufficiently correlated with the deprivation of individuals in a population is given by a poverty profile. The value of this profile will naturally be highly dependent on the approach used and the particular assumptions made to measure well-being and poverty.

Estimation of inclusion and exclusion errors is also a product of poverty profiling and measurement. These errors are central in the trade-off involved in choosing between a wide coverage of the population — at relatively low administrative and efficiency costs — and a narrower coverage — with more generous support for the fewer beneficiaries. Indeed, as van de Walle (1998a) puts it, a narrower coverage of the population, with presumably smaller errors of inclusion of the non-poor, does not inevitably lead to a more equitable treatment of the poor:

Concentrating solely on errors of leakage to the non-poor can lead to policies which have weak coverage of the poor (p.366).

The terms of this trade-off are again given by a poverty assessment exercise.

Another lesson of optimal redistribution theory is that it is usually better to transfer resources from groups with a high level of average well-being to those with a lower one. What matters more, however, is the distribution of well-being within each of the groups. For instance, equalizing mean well-being across groups does not ordinarily eliminate poverty since there generally exist within-group inequalities. Even within the richer group, for instance, there normally will be found some deprived individuals, whom a rich-to-poor cross-group redistributive process would clearly not take out of poverty. The within- and between-group distribution of well-being that is required for devising an optimal redistributive scheme can again be revealed by a comprehensive poverty profile.

1.5.2 Welfarist and non-welfarist policy implications

The distinction between the welfarist and non-welfarist approaches to poverty measurement often matters (implicitly or explicitly) for the assessment and the design of public policy. As described above, a welfarist approach holds that individuals are the best judges of their own well-being. It would thus in principle avoid making appraisals of well-being that conflict with the poor's views of their own situation. A typical example of a welfarist public policy would be the provision of adequate income-generating opportunities, letting individuals decide and reveal whether these opportunities are utility maximizing, keeping in mind the other non-income-generating opportunities that are available to them.

A non-welfarist policy analyst would argue, however, that providing income opportunities is not necessarily the best policy option. This is partly because individuals are not necessarily best left to their own resolutions, at least in an intertemporal setting, regarding educational and environmental choices for example. The poor's short-run preoccupations may, for instance, harm their long-term self-interest. Individuals may choose not to attend skill-enhancing programs because they deceivingly appear overly time costly in the short-run, and because they are not sufficiently aware or convinced of their long-term benefits. Besides, if left to themselves, the poor will not necessarily spend their income increase on functionings that basic-needs analysts would normally consider a priority, such as good nutrition and health.

Thus, fulfilling "basic needs" cannot be satisfied only by the generation of private income, but may require significant amounts of targeted and in-kind public expenditures on areas such as education, public health and the environment. This would be so even (and especially) if the poor did not presently believe that these areas were deserving of public expenditures. Furthermore, social cohesion concerns are arguably not well addressed by the maximization of private utility, and raising income opportunities will not fundamentally solve problems caused by adverse intra-household distributions of well-being, for instance.

An objection to the basic needs approach is that it is clearly paternalistic since it supposes that it must be in the absolute interests of all to meet a set of often arbitrarily specified needs. Indeed, as emphasized above, non-welfarist approaches generally use criteria for identifying and helping the poor that may conflict both with the poor's preferences and with their utility maximizing choices. The welfarist school conversely emphasizes that individuals are generally better placed to judge what is good for them. For instance,

To conclude that a person was not capable of living a long life we must know more than just how long she lived: perhaps she preferred a short but merry life. (Lipton and Ravallion 1995)

To force that person to live a long but boring life might thus go against her preferences.

For poverty alleviation purposes, the prescriptions of non-welfarist approaches could in principle go as far as, for instance, enforced enrolment in community development programs, forced migration, or forced family planning. This may not only conflict with the preferences of the poor, but would also clearly undermine their freedom to choose. Freedom to choose is, however, arguably one of the most important basic capabilities that contribute fundamentally to well-being.

A further example of the possible tension between the welfarist and non-welfarist influences on public policy comes from optimal taxation theory, which is linked to the theory of optimal poverty alleviation. In the tradition of classical microeconomics, which values leisure in the production and labor market decisions of individuals, pure welfarists would incorporate the utility of leisure in the overall utility function of workers, poor and non-poor alike. In its support to the poor, the government would then take care of minimizing the distortion of their labor/leisure choices so as not to create overly high "deadweight losses". Classical optimal taxation theory then shows that being concerned with such things as labor/leisure distortions implies a generally lower benefit reduction rates on the income of the poor than otherwise. Taking into account such abstract things as "deadweight losses" is, however, less typical of the basic needs and functioning approaches. Such approaches would, therefore, usually target program benefits more sharply on the poor, and would exact steeper benefit reduction rates as income or well-being increases.

Relative to the pure welfarist approach, non-welfarist approaches are also typically less reluctant to impose utility-decreasing (or "workfare") costs as side effects of participation in poverty alleviation schemes. These side effects are in fact often observed in practice. For instance, it is well-known that income support programs frequently impose participation costs on benefit claimants. These are typically non-monetary costs. Such costs can be both physical and psychological: providing manual labor, spending time away from home, sacrificing leisure and home production, finding information about application and eligibility conditions, corresponding and dealing with the benefit agency, queuing, keeping appointments, complying with application conditions, revealing personal information, feeling "stigma" or a sense of guilt, etc...

Although non-monetary, these costs impact on participants' net utility from participating in the programs. When they are negatively correlated with unobserved (or difficult to observe) entitlement indicators, they can provide self-selection mechanisms that enhance the efficiency of poverty alleviation programs, for welfarists and non-welfarists alike. One unfortunate effect of these costs is, however, that many truly-entitled and truly deserving individuals may shy away from the programs because of the costs they impose. Although program participation could raise their income and consumption above a money-metric poverty line, some individuals will prefer not to participate, revealing that they find apparent poverty utility greater than that of program participation. Welfarists would in principle take these costs into account when assessing the merits of the programs. Non-welfarists would usually not do so, and would therefore judge such programs more favorably.

Finally, the width of the definition of functionings is also important for the design and the assessment of public policy. For instance, public spending on education is often promoted on the basis of its impact on future productivity and growth. But education can also be seen as a means to attain the functioning of literacy and participation in the community. This then provides an additional support for public expenditures on education. Analogous arguments also apply, for instance, to public expenditures on health, transportation, and the environment.

Document(s) 3 of 20