The Importance of Consecutive Spells of Poverty: A Path‐dependent Index of Longitudinal Poverty

Abstract

In this paper we propose a new index of individual poverty in the longitudinal perspective, taking into account the way poverty and non‐poverty spells follow one another along individual life courses. The Poverty Persistence Index (PPI) is based on all the pairwise distances between the waves of poverty. The PPI is normalized and it assigns a higher degree of (longitudinal) poverty to people who experience poverty in consecutive, rather than separated, periods, for whom the distances from the poverty line are larger along time and moreover, when the worst years are consecutive and/or recent. We also propose an aggregate index of persistence in poverty (APPI) in order to measure the distribution of the persistence of poverty in a society, and evaluate at once the diffusion of poverty, its depth, duration, and recentness. The indices are tested in comparison with other measures from the literature both at the individual as well as at the societal level.

Poverty, Vulnerability, and Reference‐Dependent Utility

“…While Foster () and Calvo and Dercon () have added a time dimension, with Foster () explicitly ruling out path dependency and Calvo and Dercon () allowing for path dependency but without advocating a particular form, more recent studies have explicitly introduced path dependency into measures of longitudinal poverty (e.g., Hoy and Zheng, ; Bossert et al ., ; Mendola and Busetta, ). For example, Bossert et al .…”

“…Moreover, from an axiomatic perspective, loss aversion nicely captures the broad consensus of policy makers and researchers that vulnerability measures should be specifically concerned about the impact of downside risks on individuals' well‐being. For example, the World Development Report (World Bank, ) states that “vulnerability measures the resilience against a shock—the likelihood that a shock will result in a decline in well‐being.” Calvo and Dercon () define vulnerability as “exposure to downside risks.” Similarly, when moving from a static to a dynamic assessment of poverty, reference‐dependent utility can capture path dependency , which has recently been proposed in various forms by several studies on multi‐period poverty (e.g., Hojman and Kast, ; Hoy and Zheng, ; Bossert et al ., ; Mendola and Busetta, ). Reference‐dependent utility models provide an empirically validated framework of how the history or path of consumption can be incorporated into dynamic poverty assessments.…”

Chronic and Late Poverty as the Main Concerns in a Twofold Survey on Intertemporal Poverty Preferences

“…(), Mendola et al . (), and Mendola and Busetta (, ) allow for higher intensities of periods in poverty the closer they are—Hoy and Zheng () define the former formulation as strict chronic poverty principle. In addition, Dutta et al .…”

“…(), intertemporal poverty would be larger in the first scenario; however, this verdict does not originate from age‐related concerns but is down to the lower mitigation potential offered by affluent periods in the case of the first scenario. The opposite ranking between the two scenarios is determined by the Mendola and Busetta () framework; however, again, their late poverty principle underpinning the decay factor they use in their index is introduced with the aim of attributing more importance to more recent periods in poverty rather than to periods in poverty experienced in older age.…”

Fuzzy Measures of Longitudinal Poverty in a Comparative Perspective

“…In the recent literature, several papers have focussed on constructing measures of lifetime or intertemporal poverty; see, for example, Porter and Quinn (2013), Calvo and Dercon (2009), Hoy and Zheng (2011), Bossert et al (2012), Gradin et al (2012), Mendola and Busetta (2012). Duclos et al (2010) propose measures of chronic and transient poverty but these categories apply to aggregates and not to individuals.…”