An introduction to the capability approach Erik Schokkaert

An introduction to the capability approach

• Erik Schokkaert

• Department of Economics, KULeuven

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).

• 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.

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Challenge 3: the indexing problem

1. Equality of what?

• Income versus utility

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)

• "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)

• Income versus utility

• "Well-being" = valuation of vector of functionings

• Achievements versus opportunities

• "Freedom" is crucial: example of fasting versus starving
• CAPABILITIES

• 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

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Challenge 3: the indexing problem

An example: Klasen (2000), Deprivation in South Africa

Example (continued)

Another example: Phipps (2002) – the well-being of children

Empirical work?

• Usually ad hoc and data-driven (factor analysis)

• Policy conclusions following from different lists not very different (Ramos and Silber, 2005)

• 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?

Two approaches

• NUSSBAUM: a priori list of capabilities, based on an Aristotelian view of "human flourishing"

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

Applications

• participatory groups?

• interesting, but necessarily leading to context-specific results

• surveys?

• Clark (2005): Coca-Cola example

Conceptual questions

• How "subjective" should our concept of well-being be, i.e. what is the place of psychological functionings?

• consumption and social status;
• feelings of depression.

• How to treat "social capabilities"?

• "living in a just society".

• Equality of what? A normative debate

• 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)

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

Some quotes:

• 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

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Opportunities are not observable
• How to evaluate sets?
• Social interdependencies
• Achievements and opportunities

• Challenge 3: the indexing problem

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

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Opportunities are not observable
• How to evaluate sets?
• Social interdependencies
• Achievements and opportunities

• Challenge 3: the indexing problem

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)

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Opportunities are not observable
• How to evaluate sets?
• Social interdependencies
• Achievements and opportunities

• Challenge 3: the indexing problem

B. How to evaluate sets?

A seminal article: Pattanaik and Xu (1990)

Take the best element?(Sen: "elementary evaluation")

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

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Opportunities are not observable
• How to evaluate sets?
• Social interdependencies
• Achievements and opportunities

• Challenge 3: the indexing problem

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?

Basu (1987) – Edgeworth box

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)

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Opportunities are not observable
• How to evaluate sets?
• Social interdependencies
• Achievements and opportunities

• Challenge 3: the indexing problem

D. Achievements and opportunities

Example 1: Medicare, part D (2006)

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)

Savings plans: is there a problem of self-control? Does procrastination leads to "too low" savings?

Importance of the default options

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

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Challenge 3: the indexing problem

• Welfarism and the happiness literature
• A partial approach: the dominance relation
• A way out? The equivalence ordering

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.

Two approaches

Dutta et al. (2003)

• The two approaches are only equivalent under very restrictive conditions (basically linear aggregators – cf. HDI)

• Not surprising but highly relevant!

Primitive weighting schemes

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)?

The problem

• Assume Ri is sound, well-informed and respectable

• How to rank individual situations (fi, Ri)?

• 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

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Challenge 3: the indexing problem

• Welfarism and the happiness literature
• A partial approach: the dominance relation
• A way out? The equivalence ordering

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

Over time, no correlation between income and satisfaction

Europe…

Explanation of individual "life satisfaction" (Helliwell, Econ. Modelling, 2003)

Freedom and happiness

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?

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

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Challenge 3: the indexing problem

• Welfarism and the happiness literature
• A partial approach: the dominance relation
• A way out? The equivalence ordering

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?

Conflicting with the personal-preference principle

Structure

• Equality of what?

• Challenge 1: selection of functionings

• Challenge 2: capabilities versus achievements

• Challenge 3: the indexing problem

• Welfarism and the happiness literature
• A partial approach: the dominance relation
• A way out? The equivalence ordering

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

A way out? The equivalence ordering

Equivalent income

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

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?"

Life satisfaction in Russia: low!

Estimating the "satisfaction" equation

Indifference curves

Fixing reference values

• health: perfect health

• employment: not being unemployed

• wage arrears: no wage arrears

• housing: median

• calculation of "equivalent incomes" Yi*

Portrait of the deprived

Example 2: direct questionnaires

• Why not ask individuals directly about their "willingness to pay"?

• Example: health-income combinations

An empirical exploration

• Survey based on hypothetical scenarios (2007)

• Location: Marseille (542 respondents)

• Three parts in the questionnaire:

• Questions on respondent's income, household income, household composition + usual socio-demographic questions.
• 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).
• Retrospective hypothetical scenario: decrease of personal income to avoid health problems that have developed in the past twelve months.

Preferences elicitation

• Step 1:

Preferences elicitation

• Step 2:

Preferences elicitation

• Step 3:

Empirical results

• Participation question:
• Positive answers : 435 (80,25%)
• Negative answers: 101 (18,63%)
• Don’t know: 6 (1.11%)

Empirical results

• WTP and Income:

Empirical results

• WTP and access to health care:

Empirical results

• WTP and self-reported health:

Econometric analysis

• theoretical setting:

• functional specification (cf. Van Soest, Das and Gong, 2002):

Results

Indifference curves 1

Indifference curves 2

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%):

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