Transcript The capability approach - DSE

An introduction to the
capability approach
Erik Schokkaert
Department of Economics, KULeuven
1
Introduction


consequentialist evaluation of policy: how to
evaluate social states?
main contribution of Sen:



introduced ideas about multidimensional measurement
of quality of life (Cummins, 1996: 1,500 articles) into
economics;
was among those who stimulated the debate between
economists and social and political philosophers
(Rawls);
started with a rigorous analysis of the issues (related to
social choice theory) – "Commodities and Capabilities"
(1985).
2

Popularity far beyond academia: Human
Development and Capability Association,
Journal of Human Development




social choice theoreticians, heterodox economists,
social activists;
proliferation of different interpretations;
believers and non-believers.
I will focus on methodological issues which
are (in my view) crucial if one wants to use
the approach for a coherent evaluation of
policies.
3
Structure
1.
2.
3.
4.
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
Challenge 3: the indexing problem
4
1. Equality of what?
I.
Income versus utility
does not sufficiently take
into account interpersonal
differences in needs
- "physical condition
neglect"
- "valuation neglect"
5
Basic critique on welfarism

"Physical-condition neglect": mental attitude of
the person does not sufficiently take into account
the real physical conditions


expensive tastes
adaptation of aspirations to objective
circumstances
A person who is ill-fed, undernourished,
unsheltered and ill can still be high up in the scale
of happiness or desire-fulfillment if he or she has
learned to have "realistic" desires and to take
pleasure in small mercies. (Amartya Sen)
6

"Valuation neglect": valuing a life is a reflective
activity; content of a life is a crucial determinant
of its value

the drug-example
It is better to be a human being dissatisfied than a pig
satisfied; better to be Socrates dissatisfied than a fool
satisfied. And if the fool, or the pig, is of a different
opinion, it is because they only know their own side of
the question. The other party to the comparison
knows both sides. (John Stuart Mill)
7
I.
Income versus utility
does not sufficiently take
into account interpersonal
differences in needs
- "physical condition
neglect"
- "valuation neglect"
FUNCTIONINGS
bi  fi (c(x i ))
e.g. being well-nourished, mobile, healthy, taking part in the life
of the community
8
"Well-being" = valuation of vector of
functionings vi  vi (bi )  vi (fi (c( x i )))
II.
Achievements versus opportunities
"Freedom" is crucial: example of fasting versus
starving
FUNCTIONINGS
CAPABILITIES
Qi (Xi )  bi bi  fi (c(x i )), for some fi  Fi , x i  Xi 
9



capabilities = real "positive" freedom (not
equal opportunities in narrow sense)
capability approach is NOT a complete theory
of justice (or social evaluation)
example: relative versus absolute poverty
10
Structure
1.
2.
3.
4.
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
Challenge 3: the indexing problem
11
An example: Klasen (2000), Deprivation in
South Africa
12
Example (continued)
13
Another example: Phipps (2002) – the wellbeing of children
14
Empirical work?

Usually ad hoc and data-driven (factor
analysis)

Policy conclusions following from different
lists not very different (Ramos and Silber,
2005)
15

Should we not be more ambitious:



IF we want to formulate clearly the trade-offs
between different policy issues and in different
policy domains;
IF we want to integrate the evaluation in a
coherent second best-analysis;
IF we want to avoid manipulation of the results of
the policy evaluation?
16
Two approaches

NUSSBAUM: a priori list of capabilities,
based on an Aristotelian view of "human
flourishing"
17
18
19
Two approaches

NUSSBAUM: a priori list of capabilities,
based on an Aristotelian view of "human
flourishing"

SEN: flexible approach, in which the
definition of the list of capabilities has to be
settled in a democratic process through
public reasoning
20
Applications

participatory groups?


interesting, but necessarily leading to contextspecific results
surveys?

Clark (2005): Coca-Cola example
21
Conceptual questions
How "subjective" should our concept of wellbeing be, i.e. what is the place of
psychological functionings?
1.


consumption and social status;
feelings of depression.
How to treat "social capabilities"?
2.

"living in a just society".
22
Equality of what? A normative debate
3.

personal sphere (respect for privacy and
personal integrity)
Two possible options:



keep the full list of functionings, but redefine the
task of government: it has to set the
environmental and social conditions under which
individuals can take up their own responsibility
(Nussbaum)
include only refined functionings which are in the
realm of social responsibility (Fleurbaey, 1995)
23
AVOID ADHOCERY
•, FORMULATE
THE CHOICE OF FUNCTIONINGS
AS A NORMATIVE PROBLEM
• KEEP THE SAME LIST OF FUNCTIONINGS
WHEN COMPARING POLICY INTERVENTIONS
IN DIFFERENT DOMAINS
24
A real-world example

each major policy proposal by the European
Commission has to be accompanied by an
"Impact Assessment" (IA)


"Better Regulation"-agenda of Barroso
description of the consequences (impacts) of
the policy action to allow for a more
transparent discussion of trade-offs and of
synergies between impacts and objectives
25
Some quotes:
26

impacts have to be described in three
domains:



economic: competitiveness, administration costs,
international relations, macroeconomic
environment.
social: employment and labour markets, social
inclusion, equality of treatment and opportunity,
non-discrimination, governance, access to justice,
media, ethics, public health and safety, crime,
terrorism, security, social protection, access to
education
environment: air and water quality, climate
change, biodiversity, waste production, transport
modes, animal and plant health, food safety
27
Structure
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
1.
2.
3.
A.
B.
C.
D.
4.
Opportunities are not observable
How to evaluate sets?
Social interdependencies
Achievements and opportunities
Challenge 3: the indexing problem
28
Two ways to incorporate freedom

Opportunity sets
OR

"Refined functionings"/"comprehensive
outcomes"

include the availability of alternatives or the
process of choice itself in the definition of the
functionings

e.g. fasting/starving example
29
Structure
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
1.
2.
3.
A.
B.
C.
D.
4.
Opportunities are not observable
How to evaluate sets?
Social interdependencies
Achievements and opportunities
Challenge 3: the indexing problem
30
A. "Opportunities" are not
observable

describing opportunities requires consideration
of counterfactual states


only achievements are directly observable
how reliable are survey studies? how to
formulate the "opportunities" question in an
attractive way?
(cf. Paul Anand)
31
Structure
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
1.
2.
3.
A.
B.
C.
D.
4.
Opportunities are not observable
How to evaluate sets?
Social interdependencies
Achievements and opportunities
Challenge 3: the indexing problem
32
B. How to evaluate sets?
L2
L2
R
Q
0
Q
R
L1
0
L1
33
A seminal article: Pattanaik and Xu (1990)
IFF CARDINALITY-BASED ORDERING
34
Take the best element?(Sen: "elementary evaluation")
L2
L2
R
b
R
b
a
a
Q
Q
0
L1
0
L1
General question: how to take into account preferences?
Compare {a} and {b} in terms of "freedom"?
35
Refined functionings as an alternative?


basic freedoms of thought, speech, political
activity, travel etc. part of the functioning
vector
indirect indicators of opportunities: education,
social relations, accessibility of the health
care system
challenge: to model the process of "producing"
refined functionings
36
Structure
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
1.
2.
3.
A.
B.
C.
D.
4.
Opportunities are not observable
How to evaluate sets?
Social interdependencies
Achievements and opportunities
Challenge 3: the indexing problem
37
C. Social interdependencies

achieved functionings of person A do not only
depend on A's choices, but also depend on
actions taken by other individuals

how then to define the "capabilities"
(opportunities) of A?
38
Basu (1987) – Edgeworth box
39
An example from the theory of rights
(Gibbard)




Angelina: (AE) PA (AJ) PA (S)
Erwin: (S) PE (AE) PE (AJ)
"freedom of choice": (AJ) P (S) & (S) P (AE)
=> (AJ) P (AE)
Pareto: (AE) P (AJ)
40
Structure
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
1.
2.
3.
A.
B.
C.
D.
4.
Opportunities are not observable
How to evaluate sets?
Social interdependencies
Achievements and opportunities
Challenge 3: the indexing problem
41
D. Achievements and opportunities
compare {R,b} and {R,c}
L2
b
compare {Q,a} and {R,c}
a
c
0
Q
R
L1
Are persons responsible for all their choices?
• compassion: what about sins of one's youth?
• limitations of individual decision-making
capacities
42
Example 1: Medicare, part D (2006)
Source: McFadden, AER, 2006
43
Example 2: Savings and retirement

I focus on one (socially important) example:
savings decisions in the context of retirement

participation in US employer-sponsored defined
contribution savings plans (401(k) plans)
44
Savings plans: is there a problem of self-control?
Does procrastination leads to "too low" savings?
68%
31%
35% of "too low" group intend to increase their contributions;
only 14% of that subgroup actually do increase their contributions
Source: Choi et al., NBER, 2004
45
Importance of the default options
Example 1: automatic enrollment
effects are largest for younger employees,
lower-paid employees, Blacks and
Hispanics
Source: Choi et al., NBER, 2004
46
Example 2: choice of contribution rate (anchoring)
Results are even more pronounced for
choice of asset allocation
Source: Choi et al., NBER, 2004
47
Refined functionings as an alternative?


how to measure "the actual ability to
achieve"? (Sen) Integrate limited capacities
of decision-making in the evaluation of
opportunity sets?
OR: consider "comprehensive outcomes",
including the process of choice itself
challenge: to analyze carefully the choice process
48
Structure
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
Challenge 3: the indexing problem
1.
2.
3.
4.
A.
B.
C.
Welfarism and the happiness literature
A partial approach: the dominance relation
A way out? The equivalence ordering
49
The indexing problem

For policy purposes, we should be able to
formulate trade-offs between different
functionings in a consistent way

"Leaving it to the politicians" implies that much
leeway is given to the "political decision-making
process":



democratic transparency not at all guaranteed;
huge possibilities of manipulation;
priority to what can be quantified.
50
Two approaches
functioning 1
person 1
b11
…
…
person n
bn1
well-being of
person
1 k
functioning
…
…
b1k
…
"average" value bfor
functioning 1 1k
natural approach: aggregate first over functionings (per person), then over persons
alternative approach (HDI): aggregate first over
persons, then over functionings
51
Dutta et al. (2003)


The two approaches are only equivalent
under very restrictive conditions (basically
linear aggregators – cf. HDI)
Not surprising but highly relevant!
If we are ultimately interested in the well-being
of individual persons, only one procedure is
interesting in principle
52
Primitive weighting schemes


  1   Life    Life  

  3   Life    Life  
 log  GDP   log GDP MIN
i
1
HDI i 
3  log GDP MAX  log GDP MIN

  Educ   Educ MIN

i
1

 
3  Educ MAX  Educ MIN 


 




 



MIN
i
MAX
MIN
"Losses in human welfare linked to life expectancy, for
example, cannot be compensated for by gains in other
areas such as income or education." (Human
Development Report, 2005)
53
A question on multidimensional
inequality/poverty measurement




Most indices impose a weighting scheme for
the different dimensions
Where do the weights come from?
The economists playing God?
How to introduce some respect for individual
preferences (individual's ideas about what is
a good life)?
54
The problem

Assume Ri is sound, well-informed and
respectable

How to rank individual situations (fi, Ri)?
dimensions of life
valuation ordering Ri
55
PERSONAL-PREFERENCE PRINCIPLE
(fi,Ri) is at least as good as (f'i,Ri) if and only if
fi Ri f'i
SAME PREFERENCES PRINCIPLE
if Ri = Rj, (fi,Ri) is at least as good as (fj,Rj) if
and only if fi Ri fj
56
Structure
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
Challenge 3: the indexing problem
1.
2.
3.
4.
A.
B.
C.
Welfarism and the happiness literature
A partial approach: the dominance relation
A way out? The equivalence ordering
57
A. Welfarism and the happiness
literature



Psychologists have a huge experience with
measuring attitudes, traits, emotions
Rapidly growing number of publications, now
also in mainstream economics journals
A variety of questions:
"On the whole, are you very satisfied, fairly satisfied,
not very satisfied or not at all satisfied with the life you
lead?"

Results show some remarkably robust empirical
patterns
58
Over time, no correlation between income and
satisfaction
Source: Diener et al., Psychological Bulletin, 1999
59
Europe…
60
Explanation of individual "life satisfaction" (Helliwell,
Econ. Modelling, 2003)
61
Freedom and happiness
Source: Frey and Stutzer, Journal of Economic Literature, 2002
62
Strong points of the happiness-approach:

has brought in a forceful way different
considerations into the picture, which always have
been dear to the CA-approach:




importance of non-material values
crucial role of health and employment (social integration)
freedom and autonomy contribute to people's happiness
is it not possible that the answers on the satisfaction
question reflect to some extent individuals' views on
what is a good life?

taking human beings seriously?
63
Happiness approach does not satisfy the
same-preferences principle

two persons



situation I : average inhabitant of Iceland,
university degree, life expectancy 81.5 years,
income of $36,510
situation S : average inhabitant of Sierra Leone,
no schooling, life expectancy 41.8 years, income
of $806
possible that both persons are equally happy,
but that both prefer I to S
64
Structure
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
Challenge 3: the indexing problem
1.
2.
3.
4.
A.
B.
C.
Welfarism and the happiness literature
A partial approach: the dominance relation
A way out? The equivalence ordering
65
B. A partial approach: the
dominance relation

Sen (1985)'s intersection principle: "If a
person i is better off than another person j for all
functionings, it is natural to state that the
advantage of person i is greater than (or at least
not smaller than) the advantage of person j"

(fi, Ri) is better than (fj, Rj) if fi » fj

incomplete, but an interesting starting point?
66
Conflicting with the personal-preference
principle
Brun and Tungodden (2004), Fleurbaey (2007), Pattanaik and Xu (2007)
67
Structure
Equality of what?
Challenge 1: selection of functionings
Challenge 2: capabilities versus
achievements
Challenge 3: the indexing problem
1.
2.
3.
4.
A.
B.
C.
Welfarism and the happiness literature
A partial approach: the dominance relation
A way out? The equivalence ordering
68
C. A way-out? The equivalence
ordering

Restrict the dominance principle to a curve

THEOREM:
The Personal-Preference Principle and the
Restricted Dominance Principle imply that the
ranking of (fi, Ri) is an Equivalence Ordering
69
A way out? The equivalence ordering
70
Equivalent income
71
Choice of the reference path



Basic principle: formulation of distributional
judgments that are independent of individual
preference
Individuals at the reference can be compared by
their ordinary incomes, independently of their
preferences
Example: health-wealth combinations


two persons with poor health – not obvious that wealthier
person is better off is he cares more about health
two healthy persons – natural to rank them according to
their wealth
72
Example 1: use of satisfaction data

Data from the Russia Longitudinal Monitoring
Survey (RLMS) for seven waves between
1995-2003

12016 individuals

Detailed information on living conditions and
personal characteristics: how to weight these
different dimensions?

"Satisfaction with life"-question: "To what
extent are you satisfied with your life in
general at the present time?"
73
Life satisfaction in Russia: low!
74
Estimating the "satisfaction" equation
FUNCTIONINGS
ASPIRATION
LEVELS
75
Indifference curves
76
Fixing reference values

health: perfect health
employment: not being unemployed
wage arrears: no wage arrears
housing: median

calculation of "equivalent incomes" Yi*



77
Portrait of the deprived
78
Example 2: direct questionnaires

Why not ask individuals directly about their
"willingness to pay"?

Example: health-income combinations
79
An empirical exploration



Survey based on hypothetical scenarios (2007)
Location: Marseille (542 respondents)
Three parts in the questionnaire:
1. Questions on respondent's income, household income,
household composition + usual socio-demographic
questions.
2. Health in the last 12 months: diseases (close-ended and
open-ended questions), access to health care and health
expenditures, self-reported health (verbal analog scale).
3. Retrospective hypothetical scenario: decrease of personal
income to avoid health problems that have developed in
the past twelve months.
80
Preferences elicitation

Step 1:
Introductory text
During the first part of the questionnaire, you provided us information
about your health in the past 12 months and your current health. You
also provided us information on your financial resources. We now would
like to evaluate with you the burden of your health problems in the past
12 months and the way you compare health gains and income.
(respondent is given a brief summary on his/her responses to the health
and financial resources questions.)
81
Preferences elicitation

Step 2:
Participation question
If no health problems had occurred in the past 12 months and you
would therefore have been in perfect health, you would have saved the
health expenditures that you stated earlier. Moreover, you would have
benefited from a better quality of life. Without accounting for health
expenditures, would you have preferred a lower income in the last 12
months without any of the health problems that you had?
(Answer: Yes / No / Don’t know)
82
Preferences elicitation

Step 3:
Valuation question (if yes to the previous question)
Indicate the monthly decrease in your personal consumption in the last
12 months that you would have accepted to forgo in order to be in
perfect health (during the same period of time) on top of health
expenditures that you would have saved.
(Payment card: intervals on a grid from 0 to more than 1500
euros)
83
Empirical results
i.
Participation question:
•
Positive answers : 435 (80,25%)
•
Negative answers: 101 (18,63%)
Other aspects of my life are more important than health
52
51,40%
My level of resources is too low
36
35,60%
Refusal to participate / protest answer
11
10,90%
Too difficult
2
1,90%
•
Don’t know: 6 (1.11%)
84
Empirical results
ii. WTP and Income:
Income Quantile
Mean ratio WTP/
household income
Mean ratio WTP/
personal income
0-25%
6.4%
10.1%
25-50%
3.9%
7.7%
50-75%
75-100%
4.6%
3.7%
6.7%
6.7%
85
Empirical results
iii. WTP and access to health care:
Annual number of
visits to the GP
Mean ratio WTP/
household income
Mean ratio WTP/
personal income
Less than 2
4.0%
6.0%
2 to 3
5.0%
8.9%
3 to 6
More than 6
4.4%
6.5%
7.7%
11.0%
86
Empirical results
iv. WTP and self-reported health:
Self-reported health
(verbal scale)
Mean ratio WTP/
household income
Mean ratio WTP/
personal income
« Very bad »
7.7%
10.9%
« Bad »
6.6%
8.1%
« Good »
4.9%
8.4%
« Very good »
3.1%
5.9%
« Excellent »
1.8%
3.0%
87
Econometric analysis

theoretical setting:
"healthy-equivalent income"

number of minor
diseases
number of severe
diseases
functional specification (cf. Van Soest, Das
and Gong, 2002):
88
Results
89
Indifference curves 1
90
Indifference curves 2
91
Estimated equivalent income statistics

A slight difference in inequality measures:
Gini(personal income) = 0.386
Gini(equivalent income) = 0.346

Mean number of diseases in lowest income
quantile (10%):
D1
D2
(D1>0)x(D2>0)
Personal income
2.61
.60
.42
Equivalent income
3.16
.63
.48
92
Conclusion

The capability approach has to be taken
seriously

This raises interesting theoretical challenges

The approaches presented at this Winter
School are very relevant to tackle these
challenges
93