An introduction to the capability approach Erik Schokkaert Department of Economics, KULeuven 1
Introduction n n consequentialist evaluation of policy: how to evaluate social states? main contribution of Sen: n n n 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
n Popularity far beyond academia: Human Development and Capability Association, Journal of Human Development q q q n 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 n "Physical-condition neglect": mental attitude of the person does not sufficiently take into account the real physical conditions q q 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
n "Valuation neglect": valuing a life is a reflective activity; content of a life is a crucial determinant of its value q 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 e. g. being well-nourished, mobile, healthy, taking part in the life of the community 8
"Well-being" = valuation of vector of functionings II. Achievements versus opportunities "Freedom" is crucial: example of fasting versus starving FUNCTIONINGS CAPABILITIES 9
n n n 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? n Usually ad hoc and data-driven (factor analysis) n Policy conclusions following from different lists not very different (Ramos and Silber, 2005) 15
n Should we not be more ambitious: q q q 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 n NUSSBAUM: a priori list of capabilities, based on an Aristotelian view of "human flourishing" 17
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Two approaches n NUSSBAUM: a priori list of capabilities, based on an Aristotelian view of "human flourishing" n 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 n participatory groups? q n interesting, but necessarily leading to contextspecific results surveys? q Clark (2005): Coca-Cola example 21
Conceptual questions How "subjective" should our concept of well-being be, i. e. what is the place of psychological functionings? 1. n n consumption and social status; feelings of depression. How to treat "social capabilities"? 2. n "living in a just society". 22
Equality of what? A normative debate 3. n personal sphere (respect for privacy and personal integrity) Two possible options: n n n 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 n each major policy proposal by the European Commission has to be accompanied by an "Impact Assessment" (IA) q n "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
n impacts have to be described in three domains: q q q 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 n Opportunity sets OR n "Refined functionings"/"comprehensive outcomes" q include the availability of alternatives or the process of choice itself in the definition of the functionings n 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 n describing opportunities requires consideration of counterfactual states q n 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? 33
A seminal article: Pattanaik and Xu (1990) IFF CARDINALITY-BASED ORDERING 34
Take the best element? (Sen: "elementary evaluation") General question: how to take into account preferences? Compare {a} and {b} in terms of "freedom"? 35
Refined functionings as an alternative? n n 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 n achieved functionings of person A do not only depend on A's choices, but also depend on actions taken by other individuals n how then to define the "capabilities" (opportunities) of A? 38
Basu (1987) – Edgeworth box 39
An example from theory of rights (Gibbard) n n 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} compare {Q, a} and {R, c} 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: Mc. Fadden, AER, 2006 43
Example 2: Savings and retirement n I focus on one (socially important) example: savings decisions in the context of retirement q 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? n n 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 n For policy purposes, we should be able to formulate trade-offs between different functionings in a consistent way n "Leaving it to the politicians" implies that much leeway is given to the "political decision-making process": q q q democratic transparency not at all guaranteed; huge possibilities of manipulation; priority to what can be quantified. 50
Two approaches functioning 1 person 1 b 11 … bn 1 … … person n well-being of person 1 k functioning … b 1 k … "average" value b for functioning 1 1 k 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) n n 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 "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 n n 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 n Assume Ri is sound, well-informed and respectable n 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 n n n 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? " n 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: n has brought in a forceful way different considerations into the picture, which always have been dear to the CA-approach: q q q n 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? q taking human beings seriously? 63
Happiness approach does not satisfy the same-preferences principle n two persons q q n 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 n 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" n (fi, Ri) is better than (fj, Rj) if fi » fj n 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 n Restrict the dominance principle to a curve n 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 n n n 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 q q 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 n Data from the Russia Longitudinal Monitoring Survey (RLMS) for seven waves between 1995 -2003 q 12016 individuals n Detailed information on living conditions and personal characteristics: how to weight these different dimensions? n "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 n health: perfect health employment: not being unemployed wage arrears: no wage arrears housing: median n calculation of "equivalent incomes" Yi* n n n 77
Portrait of the deprived 78
Example 2: direct questionnaires n Why not ask individuals directly about their "willingness to pay"? n Example: health-income combinations 79
An empirical exploration n Survey based on hypothetical scenarios (2007) Location: Marseille (542 respondents) Three parts in the questionnaire: 1. Questions on respondent's 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 n 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 n 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 n 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% 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 n theoretical setting: "healthy-equivalent income" n 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 n A slight difference in inequality measures: Gini(personal income) = 0. 386 Gini(equivalent income) = 0. 346 n Mean number of diseases in lowest income quantile (10%): D 1 D 2 (D 1>0)x(D 2>0) Personal income 2. 61 . 60 . 42 Equivalent income 3. 16 . 63 . 48 92
Conclusion n The capability approach has to be taken seriously n This raises interesting theoretical challenges n The approaches presented at this Winter School are very relevant to tackle these challenges 93
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