6th Meeting of the Society for the Study of Economic Inequality ECINEQ, Université du Luxembourg, Campus Kirchberg, Luxembourg, 13-15 July, 2015
June 9, 2015
Most of the multidimensional policy indices currently in use select the household as their unit of analysis. However, they either assume the same set of needs across households or ignore that demographically dissimilar households have significantly different needs. Therefore, small households register a systematically lower number of dimensions in deprivation, and conversely, larger households register a systematically larger number of dimensions in deprivation. Household comparability, in those cases, is unsatisfactory. This paper proposes a family of multidimensional deprivation indices based on metrics that account for differences in needs at the household level. Our family of indices constitutes a parametric measurement approach that enhances house- hold comparability. It attempts to describe how much deprivation households of different sizes and compositions may exhibit in order to be catalogued as equivalently deprived. We built upon the Alkire and Foster (2011) family of multidimensional poverty indices, proposing to discount for household needs and to take into account the scale economies that arise at this level. We demonstrate the advantages of our proposed method using the 2013 Paraguayan living conditions survey and simulation methods. Final results shed light on the relevance of accounting for differences in needs across demographically heterogeneous households. This paper provides a tool for policy makers to rank multidimensionally deprived households.