Absolute poverty: When necessity displaces desire

12 Jan 18

Absolute poverty: When necessity displaces desire

Senior Research Fellow Bob Allen proposes a new kind of international poverty measurement.

Is it time for a new international poverty measurement to replace the World Bank's famous $1-a-day measure? An article published in the American Economic Review (2017, 107(12)) by Senior Research Fellow Bob Allen argues that it is.

The World Bank Poverty Line (WBPL), Allen explains in the article’s introduction, “rests on contestable foundations that give rise to a host of theoretical and practical problems as well as leading…to underestimates of poverty in much of the developing world.”

Allen’s proposal for a new basis for defining and measuring poverty uses linear programming to specify the least-cost diet and explicit budgeting for non-food spending. It avoids the many problems of the WBPL, he says, and makes a more robust tool for measuring extreme poverty on a global basis.

Allen explains that ideally, the international poverty line should satisfy five criteria. It should:

  1. have a clear meaning related to survival, health, and well-being;
  2. represent a constant standard across time and space;
  3. respond to local prices and other pertinent local factors like climate
  4. avoid intractable index number problems; and
  5. require only readily available information.

The paper explains an approach that satisfies these requirements to result in a new measurement: the Basic Needs Poverty Line (BNPL).

Read the article “Absolute Poverty” to discover more about Allen’s proposed measurement, and what it means for understanding levels of extreme poverty around the world.