The Measurement of Capabilities

1. The Measurement of Capabilities 4th University of Verona Winter School Canazei, 2009 Paul Anand Economics, The Open University and Health Economics Research Centre, Oxford University

2. Overview – Data for Capabilities Measurement I. Motivation (Utility and Social Choice) II. Capabilities Approach to Welfare Economics: Context, Theory and Operationalisation Issues III. The Capabilities Measurement Project phase 1 pilot + BHPS phase 2 ocap (UK, Argentina, Scotland) phase 3 child development, oxcap19 IV. Exercise

3. Philosophy and Social Science Ian Carter Keith Dowding Francesco Guala Martin van Hees Graciela Tonen Maria Sigala Economics Ron Smith Graham Hunter Jaya Krishnakumar Peter Moffat Cristina Santos Amartya Sen Capabilities Measurement Project – Some Collaborators and Advisors

4. Some publications Journal of Human Development (2009) Chapter in Festschrift for Amartya SenArguments for a Better World, Oxford University Press, Basu and Kanbur, (2008)

5. Some publications Journal of Human Development (2009) Chapter in Festschrift for Amartya SenArguments for a Better World, Oxford University Press, Basu and Kanbur, (2008) Social Indicators Research, Journal of Health Economics, Journal of Medical Ethics, Health Economics etc

6. I. Motivation from Utility Theory The case: rational agents can violate all the axioms of EU therefore there is room for empirical explorations of preference in welfare economics

7. Classical Decision Theory

8. Modern Decision Theory

9. Von Neumann and Morgernstern’s Axiomatisation of Transitive Utility

10. Fishburn’s Axiomatisation of Intransitive Utility Theory (1988 p80)

11. The Logical Consistency Argument “The proof of intransitivity is a simple example of reductio ad absurdum. If the individual is alleged to prefer A to B, B to C, and C to A, we can enquire which he would prefer from the collection of A, B and C. Ex-hypothesi, he must prefer one, say he prefers A to B or C. This however contradicts the statement that he prefers C to A, and hence the alleged intransitivity must be false. Tullock (Oxford Economic Papers 1964 p403)

12. A problem with Tullock’s Argument: Validity Tullock assumes expansion consistency – is this normatively essential? Health care and freedom of information example F={access to all records, access to no records} Preference ranking: no access>access to all

13. A problem with Tullock’s Argument: Validity Tullock assumes expansion consistency – is this normatively essential? Health care and freedom of information example F={access to all records, access to no records} Preference ranking: no access>access to all F={access to all records, access to electronic records, access to no records} Preference ranking: access to all>access to electronic>no access Conclusion – Tullocks’s argument is question begging as it relies on the normative appeal of expansion consistency

14. Semantic embeddedness - The Constitutional Argument “The theory…is so powerful and simple, and so constitutive of concepts assumed by further satisfactory theory… that we must strain to fit our findings or interpretations, to fit the theory. If length is not transitive, what does it mean to use a number to measure length at all? We could find or invent an answer, but unless or until we do, we must strive to interpret ‘longer than’ so that it comes out transitive. Similarly for ‘preferred to’. Davidson Action and Events (1980 p237)

15. Money Pump Arguments • Asynchronous Consistency Interpretation Pab, Pbc, Pca means: F1={a,b} → swap b for a and pay e’ F2={b,c} → swap c for b and pay e’’ F3={a,c} → swap a for c and pay e’’’ Then one F prevails and this defines C No room for inconsistency to violate dominance

16. Money Pump Arguments Chaining Interpretation Pab, Pbc and Pca mean: If F1={a,b} then swap b for a and pay e’ if F2={b,c} then swap c for b and pay e’’ if F3={a,c} then swap a for c and pay e’’’ And then c + F2 F1 and F3 → C2 C1 and C3 = c – e’ – e’’ – e’’’ FishburnLavalle/Anand/Sugden objection: if F2, F1 and F3 is the choice sequence then preferences for components may not be relevant or helpful But why would anyone think that?

17. Money Pump Arguments One reason: if…then and the structure of material implication A→ x, B→ y and C→ z implies A and B and C → x and y and z However, counterfactuals don’t have this structure in general

18. Money Pump Arguments The conference goers nightmare example: A1=lose cash → have a beer A2=lose travellers cheques → have a beer A3=lose credit cards → have a gin and tonic

19. Money Pump Arguments The conference goers nightmare example: A1=lose cash → have a beer A2=lose travellers cheques → have a beer A3=lose credit cards → have a gin and tonic A1 A2 and A3 does not imply have 2 beers and a gin and a tonic Counterfactuals don’t have a chaining structure in general

20. When context can matter (I) • Possible world 1: small apple, orange

21. When context can matter (I) • Possible world 2: orange, large apple

22. When context can matter (I) • Possible world 3: small apple, large apple

23. When context can matter (I) • Possible world 1: small apple, orange • Possible world 2: orange, large apple • Possible world 3: small apple, large apple • Possible responses

24. When context can matter (I) • Possible world 1: small apple, orange • Possible world 2: orange, large apple • Possible world 3: small apple, large apple • Possible responses Large apple: size, transitivity Small apple: politeness

25. A game where context can matter (Blythe 1972 and Packard 1982) Scores on Face • Die α 1 1 4 4 4 4 • Die β 3 3 3 3 3 3 • Die γ 5 5 2 2 2 2 Rules Umpire selects two die Each player throws once Highest number wins

26. But can’t we redescribe the choice problem? Translation Possibility Theorem All intransitive behaviour can be given a description where transitivity is not violated. Conversely, all transitive behaviour can be given an intransitive description.

27. Translation i. Cab, Cbc and Cca

28. Translation i. Cab, Cbc and Cca ii. Refine primitive description l = a out of a and b m = b out a and b n = b out and b and c o = c out of b and c p = a out of a and c q = c out a and c

29. Translation i. Cab, Cbc and Cca ii. Refine primitive description l = a out of a and b m = b out a and b n = b out and b and c o = c out of b and c p = a out of a and c q = c out a and c iii. i can then be rewritten Clm, Cno, Cqp

30. Translation i. Cab, Cbc and Cac

31. Translation i. Cab, Cbc and Cac ii. Refine primitive description and map onto new language as follows: l = a out of a and b m = b out a and b m = b out and b and c n = c out of b and c n = a out of a and c l = c out a and c

32. Translation i. Cab, Cbc and Cac ii. Refine primitive description and map onto new language as follows: l = a out of a and b m = b out a and b m = b out and b and c n = c out of b and c n = a out of a and c l = c out a and c iii. i can then be rewritten Clm, Cmn, Cnl

33. Consequence for Empirical Work on Welfare • If rational agents can have intransitive preferences then preference is unlikely to have much apriori structure

34. From Decision Theory to Social Choice

35. II. The Capabilities Approach to Welfare Economics, Context, Theory and Operationalisation Issues • The Social Choice and Philosophical Background • Sen’s 3 variables and their equations • United Nation’s HDI (only 3 dims and not distinct for rich countries)

36. Modern Social Choice and Welfare Theory

37. Theory (Sen 1985 pp11-4) Sen’s Three Equations EQ 1. fi = fi(xi) - heterogeneity in conversion EQ 2. ui = hi(fi) - happiness 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.”

39. Limits to Gross National Product per capita • Ignores defensive expenditures • Ignores value of household work • Ignores differences in needs (not so important if adequate equivalence scales exist) • Emphasises material affluence (eg ignores qol at work, rights violations, how we spend our time (eg Kahneman et al 2004)) Measures monetary value of production or cost of consumption but measurement of human welfare could be more complete This is a moving target: GNP Satellite Accounts, Social Accounting Matrices (non-monetary indicators as complements) HDI More dimensions, breakdowns

40. 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

41. Phase I (2000-2006) Primary and secondary data Devise methodology for capability assessment Conduct national UK survey using OCAP - 2005 version Some ideas econometric issues associated with use of capability data Phase II (2007-2008) extending applications and analyses of capabilities measurement OCAP - Glasgow public health SHORT version OCAP - Argentina - Spanish translation Phase III (2009- OXCAP19 Oxford mental health and coercion Child Development and Old Age Capabilities Measurement Project (Summary to Date)

42. Capabilities Measurement and Assessment Our approach 1. Elicit indicators of Qi 2. Estimate ui = hi(Qi)

43. Capabilities as ScopeAnand and van Hees (2006) Question Types Achievements and Scope Perceived distribution of scope Domains Happiness Success Health Intellectual Stimulation Social Relations Environments Personal Integrity Overall Options Models Overall Options Satisfaction Individual Achievements

44. Questions a. Generally, my life is happy (strongly agree...) b. I feel the scope to seek happiness in my life is (very good…) c. The proportion of the population who have severely limited opportunities to seek happiness is (0-9%,…) a. I have satisfying social relations (strongly agree…) b. I feel the scope to form satisfying social relations in my life is (very good…) c. The proportion of the population who have severely limited opportunities to form satisfying social relations is (0-9%) a. I live a health life for my age (strongly agree…) b. I feel the scope to live a healthy life for my age is (very good…) c. The proportion of the population who have severely limited opportunities to live healthy lives for their age is (0-9%)

45. Some Conclusions Each achievement is a function of its respective capability Estimates of other capabilities are often anchored on own capabilities with notable exceptions Greatest scope: health/environment Least scope: social relations/personal integrity Issues to be Addressed • Sample Size • Secondary Data • Question Type

46. B. Some secondary data?Anand Hunter and Smith (2005) Social Indicators Research Aim Explore links between satisfaction and capabilities using BHPS data

47. Econometric Approach s = a + bC + e s = a + bC + cP + e pjhat = sj-sjhat j=10 life domains s = a + bC + cPhat + e Hausman Wu Test for endogeneity: c=0

48. Adaptation Issues If Complete and Instantaneous ‘Goods’ would have no observable impact on life satisfaction There is some evidence of adaptation especially to improvements so capabilities which impact life satisfaction are only the utilitarian capabilities

49. Two Conclusions Person specific effects significant Secondary data exists but is sparse

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