Becky Berggren, Scott Allen, Wendy Sasaki, Lane Peercy

Global Multi-cultural Discussion

How poverty is measured theoretically?

            The poverty line is the minimum cost of the poverty level of utility at prevailing prices and household characteristics.  People who do not obtain a set level of welfare are considered “poor” or below the poverty line.  Two methods used to theoretically measure the poverty line are the welfare ratio method and the equivalent expenditure method.  With the welfare ratio method, one can calculate a “true cost of living index” for fixed reference prices and reference household characteristics that is used to normalize all money incomes into comparable monetary units and a single poverty line.  This gives the “real income.”  The equivalent expenditure method finds the “equivalent expenditure.”  However there will be problems if the poverty measure is distribution sensitive.  These two methods will not give the same poverty measures in general. 

Problems when you try and apply it practically?

            There are essentially some main problems when facing poverty issues practically.  One is the referencing problem.  Looking at this from a broad perspective, it is trying to observe what the poverty line should be in utility space, which is crucial to the resulting poverty measure.  The outcome will modify the qualitative comparisons that a person will make of poverty in different religions, cultures, locations, backgrounds, and etc.  To help fight poverty, one will want to locate a certain degree of consensus about the choice of the reference utility level in a specific society.  The second is the identification problem.  Because households differ in characteristics like size and demographic composition, welfare is influenced in ways that may not be apparent to the consumer. 

            We get more information about these problems once two main areas, objective and subjective information, are addressed.  Objective poverty lines compare income with capabilities, meaning that a person’s actual income is compared with what a person is able to actually do.  The Food Energy Intake Model is an objective way of finding the poverty line.  This model finds the income level required to meet food expenditures.  Subjective methods  of determining the poverty lines are less mathematical and take into consideration what level of income an individual would consider the absolute minimum.  Objective methods are generally used in developing countries, while subjective methods are used more in developed countries.  The objective method should be more consistent, but gives us a different measure across various countries.  Poverty lines are dependent upon each country’s acceptable living standard.  For example, because the United States has a higher standard of living that most other countries, our poverty line would naturally be higher.  The elasticity of the poverty line to the mean rises as average income rises.