Shared prosperity and the mitigation of poverty : in practice and in precept

November 27, 2013
By: Basu, Kaushik
The World Bank Group recently adopted two overarching goals — the end of extreme, chronic poverty in the world by 2030 and the promotion of shared prosperity in every society. The paper examines the normative properties of these goals, their strengths and weaknesses, and their implications for actual policymaking, especially in the presence of globalization. This is closely related to the age-old debate on growth versus direct welfare interventions as instruments for countering poverty. The paper analyzes past trends on poverty and tries to shed new light on this old debate.
Keywords: Rural Poverty Reduction,Achieving Shared Growth,Services&Transfers to Poor,Economic Theory&Research,Inequality

Altruism in Networks

November 27, 2013
By: Renaud Bourlès (AMSE – Aix-Marseille School of Economics – Aix-Marseille Univ. – Centre national de la recherche scientifique (CNRS) – École des Hautes Études en Sciences Sociales [EHESS] – Ecole Centrale Marseille (ECM))
Yann Bramoullé (AMSE – Aix-Marseille School of Economics – Aix-Marseille Univ. – Centre national de la recherche scientifique (CNRS) – École des Hautes Études en Sciences Sociales [EHESS] – Ecole Centrale Marseille (ECM))
We provide the first theoretical analysis of altruism in networks. Agents are embedded in a fixed, weighted network and care about their direct friends. Given some initial distribution of incomes, they may decide to support their poorer friends. We study the resulting non-cooperative transfer game. Our analysis highlights the importance of indirect gifts, where an agent gives to a friend because his friend himself has a friend in need. We uncover four main features of this interdependence. First, we show that there is a unique profile of incomes after transfers, for any network and any utility functions. Uniqueness in transfers holds on trees, but not on arbitrary networks. Second, there is no waste in transfers in equilibrium. In particular, transfers flow through indirect paths of highest altruistic strength. Third, a negative shock on one agent cannot benefit others and tends to affect socially closer agents first. In addition, an income redistribution that decreases inequality ex-ante can increase inequality ex-post. Fourth, altruistic networks decrease income inequality. In contrast, more altruistic or more homophilous networks can increase inequality.
Keywords: private transfers; social networks; altruism; income redistribution; income inequality

Mental Illness and Unhappiness

November 27, 2013
By: Richard Layard
Dan Chisholm
Vikram Patel
Shekhar Saxena
This paper is a contribution to the second World Happiness Report. It makes five main points. 1. Mental health is the biggest single predictor of life-satisfaction. This is so in the UK, Germany and Australia even if mental health is included with a six-year lag. It explains more of the variance of life-satisfaction in the population of a country than physical health does, and much more than unemployment and income do. Income explains 1% of the variance of life-satisfaction or less. 2. Much the most common forms of mental illness are depression and anxiety disorders. Rigorously defined, these affect about 10% of all the world’s population – and prevalence is similar in rich and poor countries. 3. Depression and anxiety are more common during working age than in later life. They account for a high proportion of disability and impose major economic costs and financial losses to governments worldwide. 4. Yet even in rich countries, under a third of people with diagnosable mental illness are in treatment. 5. Cost-effective treatments exist, with recovery rates of 50% or more. In rich countries treatment is likely to have no net cost to the Exchequer due to savings on welfare benefits and lost taxes. But even in poor countries a reasonable level of coverage could be obtained at a cost of under $2 per head of population per year.
Keywords: Mental illness, welfare benefits, healthcare costs, life-satisfaction
JEL: I10 I14 I18

The rise and fall of piecework-timework wage differentials: market volatility, labor heterogeneity, and output pricing

November 27, 2013
By: Hart, Robert A
Roberts, J Elizabeth
Based on detailed payroll data of blue collar male and female labor in Britain’s engineering and metal working industrial sectors between the mid-1920s and mid-1960s, we provide empirical evidence in respect of several central themes in the piecework-timework wage literature. The period covers part of the heyday of pieceworking as well as the start of its post-war decline. We show the importance of relative piece rate flexibility during the Great Depression as well as during the build up to WWII and during the war itself. We account for the very significant decline in the differentials after the war. Labor market topics include piecework pay in respect of compensating differentials, labor heterogeneity, and the transaction costs of pricing piecework output.
Keywords: output pricing; labor heterogeneity; output fluctuations; Piecework – timework hourly pay differentials

An axiomatic approach to the measurement of envy

November 18, 2013
By: Öztürk Z.E.
Bosmans K.G.M. (GSBE)
We characterize a class of envy measures. There are three key axioms. Decomposability requires that overall envy is the sum of the envy within and between subgroups. The other two axiomsdeal with the two-individual setting and specify how the envy measure should react to simple changes in the individuals commodity bundles. The characterized class measures the envy of oneindividual to another by the relative utility difference using the envious utility function between the bundle of the envied and the bundle of the envious. The particular utility representation to be used is fixed by the axioms. The class measures overall envy by the sum of these transformed relative utility differences. We discuss our results in the light of previous contributions to envy measurement and multidimensional inequality measurement.

Income mobility

November 18, 2013
By: Jantti, Markus
Jenkins, Stephen P.
This paper is prepared as a chapter for the Handbook of Income Distribution, Volume 2 (edited by A. B. Atkinson and F. Bourguignon, Elsevier-North Holland, forthcoming). Like the other chapters in the volume (and its predecessor), the aim is to provide comprehensive review of a particular area of research. We survey the literature on income mobility, aiming to provide an integrated discussion of mobility within- and between-generations. We review mobility concepts, descriptive devices, measurement methods, data sources, and recent empirical evidence.

An Assessment of Life Satisfaction Responses on Recent Statistics Canada Surveys

November 13, 2013
By: Bonikowska, Aneta Helliwell, John F.
Measures of subjective well-being are increasingly prominent in international policy discussions about how best to measure “societal progress” and the well-being of national populations. This has implications for national statistical offices, as calls have been made for them to include measures of subjective well-being in their household surveys (Organization for Economic Cooperation and Development 2013). Statistics Canada has included measures of subjective well-being – particularly life satisfaction – in its surveys for twenty-five years, although the wording of these questions and the response categories have evolved over time. Statistics Canada’s General Social Survey (GSS) and Canadian Community Health Survey (CCHS) offer a valuable opportunity to examine the stability of life satisfaction responses and their correlates from year to year using a consistent analytical framework.
Keywords: Statistical methods, Health, Quality assurance, Mental health and well-being

Happy Peasants and Frustrated Achievers? Agency, Capabilities, and Subjective Well-Being

November 13, 2013
By: Carol Graham (The Brookings Institution)
Milena Nikolova (University of Maryland, College Park)
We explore the relationship between agency and hedonic and evaluative dimensions of well-being, using data from the Gallup World Poll. We posit that individuals emphasize one well-being dimension over the other, depending on their agency. We test four hypotheses including whether: (i) positive levels of well-being in one dimension coexist with negative ones in another; and (ii) individuals place a different value on agency depending on their positions in the well-being and income distributions. We find that: (i) agency is more important to the evaluative well-being of respondents with more means; (ii) negative levels of hedonic well-being coexist with positive levels of evaluative well-being as people acquire agency; and (iii) both income and agency are less important to well-being at highest levels of the well-being distribution. We hope to contribute insight into one of the most complex and important components of well-being, namely, people’s capacity to pursue fulfilling lives.
Keywords: agency, capabilities, subjective well-being
JEL: I14 G18 O5

Equality of Opportunity

November 7, 2013
Date: 2013-10
By: John E. Roemer (Dept. of Political Science, Yale University)
Alain Trannoy (GREQAM-IDEP)
This forthcoming chapter in the Handbook of Income Distribution (eds., A. Atkinson and F. Bourguignon) summarizes the literature on equality of opportunity. We begin by reviewing the philosophical debate concerning equality since Rawls (sections 1 and 2), present economic algorithms for computing policies which equalize opportunities, or, more generally, ways of ordering social policies with respect to their efficacy in opportunity equalization (sections 3, 4 and 5), apply the approach to the conceptualization of economic development (section 6), discuss dynamic issues (section 7), give a preamble to a discussion of empirical work (section 8), provide evidence of population views from surveys and experiments concerning conceptions of equality (section 9), and a discuss measurement issues, summarizing the empirical literature on inequality of opportunity to date (section 10). We conclude with mention of some critiques of the equal-opportunity approach, and some predictions (section 11).
Keywords: Equality of opportunity, Responsibility, Circumstances, Effort, Veil of ignorance
JEL: D3 D6 D63 H1

 What Predicts a Successful Life? A Life-Course Model of Well-Being

November 7, 2013


Date: 2013-10
By: Andrew E. Clark
Francesca Cornaglia
Richard Layard
Nattavudh Powdthavee
James Vernoit
If policy-makers care about well-being, they need a recursive model of how adult life-satisfaction is predicted by childhood influences, acting both directly and (indirectly) through adult circumstances. We estimate such a model using the British Cohort Study (1970). The most powerful childhood predictor of adult life-satisfaction is the child’s emotional health. Next comes the child’s conduct. The least powerful predictor is the child’s intellectual development. This has obvious implications for educational policy. Among adult circumstances, family income accounts for only 0.5% of the variance of life-satisfaction. Mental and physical health are much more important.
Keywords: Well-being, Life-satisfaction, Intervention, Model, Life-course, Emotional health, Conduct, Intellectual performance, Success
JEL: A12 D60 H00 I31