Rethinking Welfare Economics: a direct Operationalisation of Sen ’ s Capability Approach

1. Rethinking Welfare Economics:a direct Operationalisation of Sen’s Capability Approach Turin, Italy Department Seminar Turin December 2013 Paul Anand Economics, The Open University and Health Economics Research Centre, Oxford University

2. Rethinking Welfare Economics: A Capability Approach Motivation Background and Theory Measurement (Data Development) Development and Happiness of Very Young Children Conclusions

3. Three Major Themes Capability approach provides a feasible way of going beyond GDP (eg Petty/Kuznets/Stone/Sen) QOL/experienced utility is highly multi-dimensional Capability approach permits application of production and distributional concerns to consumers/citizens/QOL and is therefore a feasible complement to Edgeworth Box welfare economics

4. Philosophy and Social Science Ian Carter Keith Dowding Francesco Guala Martin van Hees Graciela Tonon Maria Sigala AHRB Economics and Health Alastair Gray Graham Hunter Paula Lorgelly Jaya Krishnakumar Peter Moffat Cristina Santos Judit Simon Ron Smith Laurence Roope Amartya Sen James Heckman Leverhulme Trust Capabilities Measurement Project Some Collaborators and Advisors

5. Some publications… Journal of Human Development and Capabilities (2009) Chapter in Festschrift for Amartya SenArguments for a Better World, Oxford University Press, Basu and Kanbur, (2009) Journal of Public Economics (2011) Social Indicators Research, Journal of Health Economics, Journal of Medical Ethics, Health Economics etc

7. Five Measurement Problems with GDP per head • Fails to account for loss of environmental assets • Excludes the value of household productive activities • GDP is not a measure of human wellbeing • Not all sources of wellbeing are strongly & positively related to income • Average GDP says nothing about distribution

8. Sum Utility Maximisation (Utilitarian Welfare Economics) What about Non-utility Claims like Rights and Responsibilities? What about Non-welfare Outcomes Like Freedoms? What about the Distribution? What Preferences Count? What Dimensions Matter? Problems for Traditional Welfare Economics

9. Economic Theory (Sen 1985 pp11-4) ACTIVITES DEPEND ON RESOURCES EQ 1. fi = fi(xi) - heterogeneity in conversion HAPPINESS DEPENDS ON ACTIVITIES EQ 2. ui = hi(fi) - happiness CAPABILITIES ARE ALL THE ACTIVITIES POSSIBLE FOR A PERSON GIVEN RESOURCES EQ 3. Qi = {f1,f2,…fm}/endowment - advantage xi is vector of commodities possessed by i f(.) converts resources into activities (doings/beings aka functionings) “Qi represents the freedom a person has in terms of the choice of functionings, given his personal features Fi…and his command over commodities xi.”

11. Some Early Empirical Capabilities Research • Human Development Index • Schokkaert and van Ootegem (1990) • Enrica Chiappero Martinetti (1994, 2000) • Laderchi (1997) • Kuklys (2005) • Andrea Brandolini (1999) “The purpose is to assess the operational content of the approach ie the empirical methods to measure functionings and capabilities…much of what one can do depends the available data….we discussed the practical difficulties of moving to capabilities and proposed to remain in the (refined) functionings space.” Source: Plenary paper given to the International Economics Association Congress, Buenos Aires

12. AHRB Project to Measure Capabilities (2005) Research Question Can we measure human capabilities across a wide spectrum of life domains within the conventions applicable to national household and social surveys?

13. Framework for QuestionsThe OCAP Survey Nussbaum’s List Comprehensive Robust (similar to others) Don’t require universal claims Has normative grounding

14. Question Categories • Life • Bodily Health • Bodily Integrity • Senses Imagination and Thought • Emotions • Practical Reason • Affiliation • Nature • Leisure • Control over one’s Environment

15. Bodily Health • Being able to have good health, including reproductive health; to be adequately nourished; to have adequate shelter

16. 2 Bodily Health Being able to have good health, BHEALTH (Q57) Does your health in any way limit your daily activities compared to most people of your age? Yes, No. BHPS including reproductive health; BREPRODUCT (Q61) Are you able to have children? Yes, No, Don't know, Prefer not to answer If No Please indicate the reason(s) you are not able to have children. I cannot have children because of: Q62_1 My age; Q62_2 I have had a vasectomy / hysterectomy; Q62-3 Another medical condition; Q62_4 My partner being unable / unwilling; Q62_5 Another reason; Q62_6 Prefer not to answer. to be adequately nourished BNOURISH (Q59) Do you eat fresh meat, chicken or fish at least twice a week? Yes/No BHPS If No Q60 For which of the following reasons, if any, do you NOT eat fresh meat, chicken or fish at least twice a week? [Please tick all that apply] I am vegetarian/vegan, I cannot afford to, I do not like eating fresh meat, chicken or fish that often, I do not have time to prepare fresh food., Some other reason to have adequate shelter. BSHELTER (Q85) Is your current accommodation adequate or inadequate for your current needs? More than adequate, Adequate, Inadequate, Very inadequate BCANMOVE (Q86) Are you prevented from moving home for any reason? Yes, No If yes Q87 What prevents you from moving home? Lack of money/finances; The Council would be unlikely to re-house me; Family responsibilities and/or schooling; I could not move out of my current accommodation because of some other reason

17. HEALTH STATUS Does your health in any way limit your daily activities compared to most people of your age? Yes, No. BHPS

18. REPRODUCTION Are you able to have children? NEW Yes, No, Don't know, Prefer not to answer If no please indicate the reason(s) you are not able to have children I cannot have children because of: Q62_1 My age Q62_2 I have had a vasectomy / hysterectomy Q62_3 Another medical condition Q62_4 My partner being unable / unwilling Q62_5 Another reason Q62_6 Prefer not to answer

19. NOURISHMENT Do you eat fresh meat, chicken or fish at least twice a week? Yes/No BHPS with additions If No (Q60) For which of the following reasons, if any, do you NOT eat fresh meat, chicken or fish at least twice a week? [Please tick all that apply] I am vegetarian/vegan I cannot afford to I do not like eating fresh meat, chicken or fish that often I do not have time to prepare fresh food Some other reason

20. ADEQUATE SHELTER BSHELTER (Q85) Is your current accommodation adequate or inadequate for your current needs? More than adequate, Adequate, Inadequate, Very inadequate BCANMOVE (Q86) Are you prevented from moving home for any reason? Yes, No If yes (Q87) What prevents you from moving home? Lack of money/finances; The Council would be unlikely to re-house me; Family responsibilities and/or schooling; I could not move out of my current accommodation because of some other reason

21. 5 Types of Capability Indicators Type 1. Opportunities Type 2. Abilities Type 3. Constraints Type 4. Functionings + Reasons Type 5. Functionings + Universality

22. Analyses • Multiple Dimensions of Wellbeing • Deprivation and the Identification of the Poor • Marginalisation and the Clustering of Disadvantage • Health and Wellbeing in Other Dimensions • Nature and Costs of Domestic Violence • Wellbeing in Older Age • Happiness and Development of Very Young Children

24. Gender Differences

25. Our Latest Data 2012-3 Home

26. Work

27. Community

28. Environment

29. Access to Services

30. 2011-2 dataset • To obtain a measure of activity participation, or functionings, we collected binary indicators of 30 activities individuals may or may not have been involved in “yesterday.” • Attending an evening class, caring for someone ill (unpaid), commuting, cooking, DIY, drinking alcohol, exercising, housework, internet (personal use), internet (paid employment), intimate relations, listening to music, looking after a pet, other outdoor activities, paid employment, playing a musical instrument, praying or meditating, relaxing or napping, reading for pleasure, self-care, smoking, socialising, shopping, time with children, visiting a park or countryside, visiting a cinema/concert/gallery/museum, volunteering, watching TV, other • The choice of activities was largely influenced by work by Kahneman et al. (2004, AER).

31. 2011-2 Data • We also collected data on a wide range of resources and personal characteristics. • Resource variables included income, education, health and a number of other socio-economic attributes. • For personal characteristics we collected data on ‘soft skills’ personality traits.

32. Topline results for distributions

33. Distribution of wellbeing variables • How we might compare wellbeing outcomes in the two countries when the measures are based on ordinal data? • We draw on recent work by Yalonetzky (2013, Econometric Rev), which provides stochastic dominance conditions for ordinal variables • analogous results to those in a seminal paper by Atkinson and Bourguignon (1982, Rev Econ Stud) in the context of continuous variables

34. Distribution of wellbeing variables • USA FOSD the UK for Total capabilities. • However, even SOSD is not statistically significant • USA FOSD the UK for Work and Community capabilities. • FOSD is statistically significant at the 1% level. • USA FOSD the UK for Home capabilities. • FOSD is statistically significant, but only at the 10% level. • SOSD is achieved at the 5% level.

35. Happiness regressions • Being unemployed is negatively and highly statistically significantly associated with life satisfaction in both countries. • Being married / living with partner is positively associated with life satisfaction • statistically significant at the 1% level in the USA and at the 5% level in the UK. • Being white and having an above school level education are also both positively related to life satisfaction in the UK

36. Happiness regressions • Capabilities are novel in the happiness literature and their inclusion leads to some striking observations. • In each country, both health and Home and Work capabilities are positively and statistically significantly related to life satisfaction at the 1% level. • Community capabilities are also positively related to life satisfaction in both countries (5%UK, 10%US)

37. Happiness regressions • After controlling for capabilities, the positive effect of household income becomes insignificant in both the USA and the UK. • suggests that development of capabilities may be an important mechanism via which higher levels of income can boost life satisfaction. • Similarly, the significance of being married or living with partner disappears after controlling for capabilities • suggests that development of good health and certain capabilities, particularly in the Home and Work, may be important transmission mechanisms

38. Happiness regressions • …increases in R-squared values after including Health and capabilities - to 0.548 in the USA and 0.571 in the UK (In the happiness literature, it is rare to see R-squared values above around 0.25.) • …results suggest that capabilities have been important missing variables in that literature (further corroborated by large reductions in AIC and BIC). • …relationship between life satisfaction and capabilities is likely to be highly endogenous (reverse causality)

39. Table A2: Soft skills - Means Soft Skills

43. Health and Deprivation Data • Does health limit your daily activities for your age • All capabilities, life satisfaction and socio-economic covariates Analysis (latent class) • Can we identify a group deprived on multiple dimensions? • What are capability classes related to?

46. Violent Crime, Gender Inequalities and Life Satisfaction (Anand and Santos 2007, Santos 2013) Data • Past Experience/Future vulnerability to domestic, sexual and other forms of assault • Current experience of Safety in local area during day and night Findings • Violence in general has a negative impact on life satisfaction whether you use self report or local area reports 2. Self-reported vulnerability to future assault drives out past experience of violence in happiness equations 3. Some evidence that higher relative earning females are more at risk of domestic violence 4. Happiness based estimates of costs of violence as two times higher

47. Housing and Minorities (Anand Coates and Norris 2013) Issue • Irish Travellers

48. Housing and Minorities (Anand Coates and Norris 2013) Issue • Irish Travellers Findings – A Problem of Housing? 1. Health Problems 2. Unemployment 3. Education Adds to a vicious circle of disavantage

49. Some Current Work:

50. Wellbeing Over the Life Span 11 Functionings Depend on Resources Including Particularly Gender Health and Education Happiness Depends on a Variety of Activities with Interneting Being Positive for Males and Negative for Females 4 Capabilities – Women adapt and Men don’t?