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AGGREGATE POVERTY MEASURES

Buhong Zheng
University of Colorado at Denver
Abstract. The way poverty is measured is important for an understanding of
what has happened to poverty as well as for anti-poverty policy evaluation. Sen’s
(1976) pathfinding work has motivated many researchers to focus on the way
poverty should be measured. A poverty measure, argued by Sen, should satisfy
certain properties or axioms and the desirability of a poverty measure should be
evaluated by these axioms. During the last two decades, many researchers have
adopted the axiomatic approach pioneered by Sen to propose additional axioms
and develop alternative poverty measures. The objective of this survey is to
provide a clarification on the extensive literature of aggregate poverty measures.
In this survey, we first examine the desirability of each axiom, the properties of
each poverty measure, and the interrelationships among axioms. The desirability
of an axiom cannot be evaluated in isolation, and some combination of axioms
may make it impossible to devise a satisfactory poverty measure; some axioms
can be implied by other axioms combined and so are not independent; some
others are ad hoc and are disqualified as axioms for poverty measurement. Based
on the interactions among axioms, we identify the ‘core’ axioms which together
have a strong implication on the functional form of a poverty measure. We then
review poverty measures that have appeared in the literature, evaluating the
interrelationships among different measures, and examining the properties of
each measure. The axioms each measure satisfies/violates are also summarized in
a tabular form. Several ‘good’ poverty measures, which have not been
documented by previous surveys, are also included.
Keywords. Poverty measurement; axiom; poverty measure; interrelationship;
distribution-sensitive; deprivation

A decent provision for the poor is the true test of civilization… . The
condition of the lower orders, the poor especially, was the true mark of
national discrimination.
(Samuel Johnson, 1770)1

1. Introduction
Poverty is in the news every year, especially when the U.S. Bureau of the Census
releases the poverty statistics for the previous year. The problem of poverty in the
U.S. became much more publicly recognized with Michael Harrington’s (1962)
vivid description of the plight of the poor and Lyndon Johnson’s declaration of the
war on poverty almost three decades ago. The concept of poverty seems
straightforward and not in need of ‘elaborate criteria, cunning measurement, or
probing analysis’ (Sen, 1981) in order to recognize or understand it. However,
when the focus on poverty is moved away from the extreme situation, i.e.,

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124 BUHONG ZHENG

starvation and famine, the answers to many ‘seemingly’ simple questions may not
be readily available and are far from obvious. What exactly do we mean by
poverty in countries such as the United States and Western Europe? In what sense
do we mean that poverty of a nation has increased over a certain time period?
These questions have generated a great deal of controversy, and scholars have
devoted many volumes to address the related issues. The first question is generally
referred to as the ‘perception of poverty’ — identification of poverty. Research on
the second question is called the ‘measurement of poverty’ — the aggregation of
individual poverty. The objective of this survey is to provide a clarification of the
extensive literature on aggregate poverty measures.

1.1 The importance of the way poverty is measured: the aggregation of poverty
Over the past three decades in the U.S., many policies have been designed to help
the people on the lower part of the income scale; Aid to Families with Dependent
Children (AFDC), Medicaid, and housing subsidies are typical examples. At the
same time, many anti-poverty policies have also been abolished for not properly
functioning. Here one critical question emerges: how do we measure the efficacy
of an anti-poverty policy, or, more fundamentally, how should we measure the
poverty level of a community and its changes? The measure that has been used by
most countries, including the United States, the United Kingdom, and the United
Nations is the headcount ratio — the fraction of people below the poverty line.
This measure was criticized by Watts (1968) and Sen (1976) for not considering
the income distribution of the poor. Sen was a pioneer in the study of poverty
measurement. His path-breaking work (1976) has motivated many scholars to
focus on the way poverty should be measured. The way poverty is measured is
important for an understanding of poverty as well as for policy evaluation,
because the efficacy of anti-poverty policies is evaluated by observing the changes
in poverty statistics.
The headcount ratio and another often-mentioned measure, the income gap
ratio, which is the gap between the poverty line and the average income of the
poor, may be misleading in indicating poverty status. Consider the comparison of
poverty between two regions of the same population size. Imagine first that they
have the same number of people below the common poverty line but the poor in
the first region have almost no income while the poor in the second region are just
marginally poor. It can be well argued that poverty in the second region is much
less serious than in the first region. However, the headcount ratio will indicate that
the two regions are equivalent in terms of poverty. Also imagine that the first
region has only one person below the poverty line while the second has only one
above the poverty line but the mean incomes of the poor are the same. In this case
it can be strongly defended that the first region should have much less poverty
than the second region (assuming there are at least three people in each region).
However, the income gap ratio will judge them to have the same poverty level.
Any combined measure of the headcount ratio and income gap ratio, though it
may avoid the above absurd judgements, fails to reflect the difference between
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two income distributions among the poor. For instance, if two regions have the
same number of the poor and the same mean income of the poor, any combined
measure will show an equivalence in their poverty levels regardless of how
income is distributed. In a case where the poverty line is far away from the
‘hunger line,’ if income is equally distributed in one distribution but is shared by a
few marginally poor in the other distribution, it can be well argued that the one
with equal distribution has less poverty. A distribution-sensitive measure, which
considers the income distribution of the poor, may present a better picture of
poverty intensity and its changes.
The headcount ratio and income gap ratio also fail to accurately evaluate the
efficacy of anti-poverty policies. The headcount ratio only records those anti-
poverty policies which bring people out of poverty, i.e., only poverty-eliminating
policies rather than any poverty-alleviating policies. As a consequence, the
effectiveness of many anti-poverty policies cannot be accurately recorded because
most policies such as AFDC are not designed to lift the poor out of poverty. The
income gap ratio only record any policies that change the mean income of the
poor. It does not distinguish any anti-poverty policies which aim at helping the
bottom poor from others that help poor in general (e.g., the housing subsidies).
The income gap ratio may also record an increase in the poverty level when some
poor are lifted out of poverty or indicate a decrease in the poverty level when the
poverty line is adjusted up. For a distribution-sensitive poverty measure, the
efforts of any anti-poverty policies, eliminating, alleviating or redistributing, will
be reflected in the overall poverty changes.
Parallel to the above arguments, the headcount ratio, income gap ratio or their
combinations, and the distribution-sensitive measures may imply different anti-
poverty strategies for an administration. To maximally alleviate poverty has been
one of major goals for administrations since the war on poverty began, especially
in the early years. A simple problem facing an administration is to minimize the
poverty level, given the constraint of limited resources. Assuming no other
constraints and that all poor are identical in other characteristics, it can easily be
seen that the headcount ratio always has the tendency to channel the aid to the poor
person next to the poverty line, i.e., the least needy person first and the most needy
person last. The income gap ratio will suggest no specific direction for policies as
long as no poor person crosses the poverty line. In contrast, any distribution-
sensitive poverty measure will channel assistance income to the poorest person
first, the least poor last. The scheme works as follows: income is given to the
poorest person until his income equals the next poorest person, then income is
distributed to these two equal poor persons equally until each person’s income
equal the third poorest person’s income. This pattern is repeated until all assistance
income is distributed. Therefore, only distribution-sensitive poverty measures may
lead to both horizontally and vertically equitable anti-poverty policies.

1.2 Other issues in poverty measurement


The aggregation of poverty is not the only issue in poverty measurement. Other
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126 BUHONG ZHENG

important issues include multi-dimensional poverty measurement and partial


poverty orderings which arise from the multiplicity of poverty measures, poverty
lines and equivalence scales.
The concept of poverty is essentially multi-dimensional, income is only one of
many factors in the identification of the poor. If we define poverty as ‘the failure
of basic capabilities to reach minimally acceptable levels’ (Sen, 1992, p. 109),
and capacity is a function of income, health, housing, the provision of public
goods, etc., then poverty should be measured from a multi-dimensional
perspective. In fact, Sen viewed the capability method to be ‘superior to the
income method’ and ‘the income method is at most a second best’ (Sen, 1981).
While the research on the uni-dimensional poverty measurement has flourished in
the last two decades, the multi-dimensional measurement of poverty remains an
area to be explored. 2
Since the publication of Sen (1976), researchers have adopted the axiomatic
approach to formulate new poverty measures. Unfortunately the axiomatic
characterization of any particular poverty measure is somewhat ad hoc in that it is
either built upon a prior functional form or based upon some arguable axioms. For
each set of reasonable axioms there exist multiple poverty measures and poverty
comparisons based upon different ‘equally good’ poverty measures may lead to
conflict conclusions about what has happened to poverty. Hence the poverty
comparison based upon any single poverty measure is not robust. But if all
poverty measures satisfying certain axioms lead to the same conclusion, then the
poverty comparison will be much more robust. The first dimension of partial
poverty ordering research is to determine the precise circumstances in which two
distributions can be unambiguously ranked according to an entire class of poverty
measures.
The application of a poverty measure requires one to specify the poverty line
which distinguishes the group of poor people from the rest of the population. As is
well recognized, the choice of any specific poverty line is apt to be arbitrary and
so is the poverty comparison based on a single poverty line. The second
dimension of partial poverty ordering research is to describe situations in which a
measure or a class of measures will indicate a consistent poverty ordering for all
possible poverty lines.
The measurement of poverty also needs to consider the difference in family
composition. Typically this consideration is accomplished by the use of an
equivalence scale which determines the relationship between the poverty lines for
different types of family. Several methods, including minimum nutritional needs,
expert judgement and questionnaires, have been used to determine a proper
equivalence scale. However, the choice of a particular equivalence scale, much
like the use of a single poverty line, is somewhat arbitrary and so is the
comparison based upon a single equivalence scale. The third dimension of partial
poverty ordering research is to find conditions under which two distributions can
be unanimously ranked by a set of equivalence scales.
Atkinson (1987), and Jenkins and Lambert (1993b) focused on the first
dimension of partial poverty orderings and provided very useful ordering
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AGGREGATE POVERTY MEASURES 127

conditions. To some degree, Jenkins and Lambert (1993b) also allowed the
poverty lines to be different among different distributions. Foster and Shorrocks
(1988a, 1988b) and Foster and Jin (1994) addressed the second dimension of
poverty orderings and provide important insights on poverty orderings. Atkinson
(1992) and Jenkins and Lambert (1993a) derived useful dominance algorithms for
the third dimension of poverty orderings.

1.3 The focus and organization of this survey


This survey focuses on the literature of aggregate poverty measures. 3 The
discussion is limited to ‘income space’ or, in other words, we treat poverty as
‘economic poverty’ as Foster (1984) termed. Also throughout the survey, a single
fixed poverty line is assumed and no difference in family composition is
considered. Although these make this survey more focused, it is necessary to keep
in mind that other issues described in the previous section are also very important
in poverty measurement.
Twenty years have passed since the publication of Sen’s (1976) pioneering
work. By now it is widely accepted that poverty measurement needs to consider
distribution-sensitivity in addition to counting the number of poor and calculating
the average income gap. Following Sen’s axiomatic approach, researchers have
proposed additional axioms and developed alternative poverty measures which,
including the one proposed by Sen, have been applied to address distributional
issues in the literature.
To date, several survey papers on poverty measurement have appeared in the
literature. Among them, Foster’s (1984) is very analytical and is the first com-
prehensive survey which has greatly influenced research on poverty measurement;
Seidl’s (1988) is the most comprehensive survey in that it also includes a
discussion on poverty identification; Chakravarty (1990) surveyed poverty
measurement within the broad category of social index number; other surveys
such as Sen (1979, 1983 and 1992), Kundu (1981) and Borooah (1991) also
provide many useful discussions on poverty measurement. Although some of
these surveys are quite comprehensive, a new survey is now needed for the
following two reasons. First, the desirability of each axiom, the properties of each
poverty measure, and the relationships among axioms and poverty measures are
not entirely clear. The clarification of interrelationships and the justification of
axioms are very important for poverty measurement study since various axioms
(sometimes even conflicting) have been used to construct and evaluate poverty
measures. The desirability of an axiom cannot be evaluated in isolation, and some
combinations of axioms may make it impossible to devise a satisfactory poverty
measure. Second, there have been new developments, such as Foster and
Shorrocks (1991), that have important implications for the device of poverty
measures. There are also important elements in the literature which have been
overlooked by previous surveys.
The rest of this survey is organized as follows. Section 2 critically reviews all
axioms in the poverty measurement literature and examines the logical
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128 BUHONG ZHENG

interrelationships among different axioms. Based upon the interactions among


axioms, this survey classifies all axioms into three groups: the ‘core’ axioms, the
implied axioms and nonrestrictive axioms, and the ad hoc axioms. The ‘core’
axioms can be regarded as the basic properties a distribution-sensitive poverty
measure should satisfy. Section 3 evaluates existent poverty measures, and
examines the properties each measure satisfies and the interrelationships among
measures. The properties each measure possesses/violates are summarized in a
tabular form. This section also includes several ‘good’ poverty measures that have
not been documented in the previous surveys. Section 4 concludes the survey with
a brief summary and a discussion of the application of distribution-sensitive
measures.

2. Poverty axioms

2.1 Preliminary notation and definitions


Consider discrete income distributions represented by vectors, x = (x1 , x2 , …, x n ),
drawn from the income space D =   ∞n = 1 D n, where xi ‰ D which is some
nondegenerate real interval and D n is the set of all n-tuples of elements from D.
Without loss of generality, we further assume that the elements of x are pre-sorted
in nondecreasing order, i.e., x 1 á x2 á ··· á xn.
For any given poverty line z ‰ D and distribution x ‰ D, the population can be
separated into the poor and the nonpoor. According to Donaldson and Weymark
(1986), two different definitions of the poor are possible, depending on how
individuals at the poverty line are classified. They defined these two alternatives as
the weak and the strong definitions of the poor.
Weak definition of the poor: For all x ‰ D, the poverty domain is
D p (z) ] {t ‰ D | t < z}.
Strong definition of the poor: For all x ‰ D, the poverty domain is
D p (z) ] {t ‰ D | t á z}.
Therefore, a person with income x is a poor person if x i ‰ Dp (z) and a nonpoor
person if x i ‰ D/Dp (z).
Empirically, the use of one definition or the other may not produce any
substantial difference for a fixed and somewhat arbitrary poverty line.4
Theoretically, however, the choice between the two definitions may affect the
properties a poverty measure satisfies. Donaldson and Weymark (1986) showed
several ‘impossibilities’ result when the strong definition of the poor is used;
conflicts among some axioms arise when people at the poverty line are counted as
the poor. In the literature these two definitions have been alternatively used and no
agreement has been reached. In this survey, we suggest the use of the weak
definition of the poor and defend that such a definition is consistent with the
notion of a poverty line. If bringing all poor incomes to the poverty line is the goal
of any poverty-eliminating policy, then the people at the poverty line should not
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AGGREGATE POVERTY MEASURES 129

be considered as the poor since no effort whatever will be needed to make them
nonpoor (any small amount of additional income, say a penny, will do the trick).
Hence, unlike Seidl (1988) and Chakravarty (1990), we use the weak definition of
the poor throughout the survey and keep all discussions on the strong definition of
the poor in footnotes. By so doing, the discussion and presentation are also greatly
simplified.
The population size corresponding to x is n(x) (or n), the number of poor
q(x; z) (or q), the mean income of the poor is µ p (x; z) (or µ p ), and the income
variance of the poor is σ 2 (x; z).
Several other concepts are often used in the discussion of poverty measurement:
Permutation: x ‰ D is obtained from y ‰ D by a permutation if x = yπ n (x ) × n ( x)
for some permutation matrix π n (x ) × n (x ) . A permutation matrix has elements of 0
and 1 only and each row and column sums up to one.
Replication: x ‰ D is obtained from y ‰ D by a (k − ) replication if
n(x) = k · n( y) and x = ( y, y, …, y) for some positive integer k.
Simple increment (decrement): x ‰ D is obtained from y ‰ D by a simple
increment (decrement) to a person j if xi = y i for all i % j and xj > yj (xj < yj ).
Progressive (regressive) transfer: x ‰ D is obtained from y ‰ D by a
progressive (regressive) transfer if there exists i and j, i < j, such that
xi − yi = yj − xj > 0 (<0), xj > yi and xk = yk for all k % i, j.
Relative change: (x,; z, ) ‰ D × D is obtained from (x; z) ‰ D × D by a relative
change if (x,; z, ) = λ(x; z) for some positive λ.
Absolute change: (x,; z, ) ‰ D × D is obtained from (x; z) ‰ D × D by an
absolute change if (x,; z, ) = (x; z) + (λ1 1 × n (x) ; λ) for some positive λ, where
1 1 × n (x) is a 1 × n(x) vector of ones.
€A poverty measure, according to Watts (1968), is a function of individual
incomes and the poverty line. Associated with this concept, the terms poverty
value, poverty index, poverty level and the distribution-sensitive poverty measure
are also used in the literature. A formal definition of these terms is as follows: 5
Definition: A poverty measure is a function P(x; z): D × D 2 R + whose value
— poverty value — indicates the degree of poverty intensity, or poverty level,
associated with the distribution x and the poverty line z, where R + is the non-
negative real number set. Therefore, for a given poverty measure and poverty line,
each income distribution is assigned a numerical number — poverty index. A
distribution-sensitive poverty measure is a poverty measure that satisfies the
minimal transfer axiom (to be introduced below).
The functional form of a poverty measure depends largely upon what we want
to know about poverty. One has to first set up the purpose of measurement, then
find a suitable measure within the framework. The axiomatic approach first used
by Sen (1976) fits this framework. Following Sen’s tradition, scholars specify the
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properties (or axioms) a desirable measure of the intensity of poverty should


satisfy and then search for a measure possessing these axioms. Since 1976,
scholars have developed more than a dozen new measures in this tradition. To
evaluate different poverty measures, it is necessary to examine and evaluate
various axioms and to select the basic axioms for a good poverty measure.

2.2 The axioms, interrelationships and the ‘core’ axioms

2.2.1 The axioms and justifications


€Sen was the first to formally propose axioms that a poverty measure should
satisfy. The first set of axioms he suggested is still the core of poverty
measurement today. The first axiom is the focus axiom which he implicitly used in
his 1976 paper and explicitly expressed later (Sen, 1981).
Focus Axiom: P(x; z) = P( y; z) whenever x ‰ D is obtained from y ‰ D by an
increment to a nonpoor person.
€This axiom requires a poverty measure to be independent of the income
distribution of the nonpoor. The desirability of this axiom, as argued before, rests
upon the purpose of one’s poverty measurement. If one regards poverty as an
absolute deprivation of the poor, as suggested by Sen, then the focus axiom is
perfectly appropriate. For other definitions of poverty, the focus axiom may be
inappropriate. 6 Certainly, information on nonpoor incomes can be used to
determine the poverty cutoff (such as relative poverty line), which is a completely
different exercise than what we are pursuing here. 7 Note that this axiom does not
assume the number of the nonpoor (therefore, the total population size) to be
irrelevant to the poverty measurement. 8 The effect of changes in the nonpoor
population size on the poverty value is captured by some other axioms which will
be introduced later.
Because of this axiom, researchers have frequently used the censored income
distribution instead of the income distribution itself in the literature. A censored
income distribution sets all incomes above the poverty line to the poverty line
itself. 9
Before discussing Sen’s other two axioms, we shall introduce several widely
recognized axioms.
Replication Invariance Axiom: P(x; z) = P( y; z) whenever x is obtained from
y by a (k-) replication.
Chakravarty (1983a) and Thon (1983b) first introduced this axiom into poverty
measurement from the income inequality literature. 10 Because any two different-
sized income distributions can be replicated to the same size, their inequality and
poverty levels can be directly compared. For this intuitively appealing axiom, it is
surprising to find that many early proposed poverty measures (including one of
Sen’s measures) violate it.
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AGGREGATE POVERTY MEASURES 131

Restricted Continuity Axiom: P(x; z) is left continuous as a function of xi on


Dp (z). 11
Continuity Axiom: P(x; z) is continuous as a function of x on D for any given
z. 12
One consideration for requiring continuity is the inaccuracy of income data
(Donaldson and Weymark (1986)). The restricted continuity axiom is quite
reasonable. Given a very small change in a poor person’s income, we should not
expect a huge jump in the poverty level. The additional content of continuity over
restricted continuity is the continuity of P(x; z) at the poverty line. If no one is at
the poverty line, continuity and restricted continuity are the same for a focused
poverty measure, because a focused poverty measure will always be continuous
on the income of the nonpoor according to the focus axiom. Watts (1968) may
have been the first to discuss this axiom. He argued that ‘poverty is not really a
discrete condition’ and ‘one does not immediately acquire or shed the afflictions
we associate with the notion of poverty by crossing any particular income line.’
Therefore, ‘it would seem appropriate to maintain the graduation provided by a
continuum’ (p. 325). We may treat his arguments as justifications for both
restricted continuity and continuity. 13
Symmetry Axiom: P(x; z) = P( y; z) whenever x ‰ D is obtained from y ‰ D by
a permutation.
This axiom says that the names of income recipients do not matter for
measuring the intensity of poverty. Symmetry does not impose any real restriction
as any aggregate ‘snapshot’ measure cannot avoid symmetry. 14 This simple axiom
enables one to use an ordered income distribution.
The second axiom Sen (1976) proposed was the monotonicity axiom which
says a drop (increase) in a poor person’s income should increase (decrease) the
poverty level. The monotonicity axiom has two forms, i.e., the weak monotonicity
axiom and the strong monotonicity axiom as Donaldson and Weymark (1986)
originally distinguished. 15
Weak Monotonicity Axiom: P(x; z) > P( y; z) whenever x ‰ D is obtained from
y ‰ D by a simple decrement to a poor person.
Strong Monotonicity Axiom: P(x; z) < P( y; z) whenever x ‰ D is obtained
from y ‰ D by a simple increment to a poor person.
The contents of both monotonicity axioms are very appealing. Other things
being the same, a decrease (increase) in a poor person’s income should increase
(decrease) the overall poverty level. However, these two axioms are not
equivalent: strong monotonicity implies weak monotonicity, while the reverse is
not always true. This non-equivalence arises in a situation when the increment of a
small amount of income to a poor person lifts her out of poverty. In this case,
weak monotonicity, together with continuity, imply strong monotonicity. Because
continuity is very desirable for a poverty measure, both weak monotonicity and
strong monotonicity can be well justified. 16
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The third axiom Sen (1976) proposed was the transfer axiom which requires the
poverty measure to be sensitive to the redistribution of the income within the
poor. 17 Donaldson and Weymark (1986) distinguished four different transfer
axioms by incorporating the possible effects and directions of transfers.
Minimal Transfer Axiom: P(x; z) < P( y; z) (P(x; z) > P( y; z)) whenever
x ‰ D is obtained from y ‰ D by a progressive (regressive) transfer between two
poor persons with no one crossing the poverty line as a consequence of the
transfer.
Weak Transfer Axiom: P(x; z) < P( y; z) (P(x; z) > P( y; z)) whenever x ‰ D is
obtained from y ‰ D by a progressive (regressive) transfer with at least the
recipient (donor) being poor with no one crossing the poverty line as a
consequence of the transfer.
Regressive Transfer Axiom: P(x; z) > P( y; z) whenever x ‰ D is obtained from
y ‰ D by a regressive transfer with at least the donor being poor.
Progressive Transfer Axiom: P(x; z) < P( y; z) whenever x ‰ D is obtained
from y ‰ D by a progressive transfer with at least the recipient being poor. 18,19
The core of these four transfer axioms is that an equalizing transfer (from a
richer person to a poor person) should decrease the poverty value, while a
disequalizing transfer (from a poor person to a richer person) should increase the
poverty value. By definition, minimal transfer is the weakest form among these
four axioms while progressive transfer is the strongest form, i.e., progressive
transfer ⇒ regressive transfer ⇒ weak transfer ⇒ minimal transfer.
The difference between the weak forms (minimal transfer and weak transfer)
and the strong forms (regressive transfer and progressive transfer) lies in whether
the transfer makes anyone cross the poverty line. The difference between minimal
transfer and weak transfer is that minimal transfer restricts the transfers within
the poor group (and, of course, no one becomes nonpoor from the transfer) while
weak transfer extends to include the transfers between a poor person and a
nonpoor person, i.e., it treats monotonicity as a transfer axiom between the poor
and nonpoor. In the case of transferring income from a poor person to a nonpoor
person, the transferred income is ‘wasted’ according to the focus axiom, resulting
in a pure loss to the poor. Hence weak transfer is equivalent to minimal transfer
and weak monotonicity. Progressive transfer differs from regressive transfer in
that a progressive transfer may make the recipient nonpoor while regressive
transfer cannot imply progressive transfer without the additional assumption of
continuity.
The contents of these axioms are very appealing. However, the justification ‘is
a bit less direct’ (Foster (1984)). Sen, according to Foster, offered two general
lines of argument for the weak form of the transfer axiom. One based upon the
‘comparisons of utility gains and losses in a world where the marginal utility of
income is positive but diminishing.’ The other is made in terms of a notion of
relative deprivation: when a regressive transfer takes place from a more deprived
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AGGREGATE POVERTY MEASURES 133

poor person to a less deprived poor person, ‘in a straightforward sense the overall
relative deprivation is increased.’ (Sen (1981), p. 31). The justification for
regressive transfer and progressive transfer has proven to be the most
‘troublesome’ (Thon, 1983a). Sen originally proposed a version of regressive
transfer in his 1976 paper. Later he found that the poverty measure he proposed
violated the axiom, and hence he maintained only minimal transfer. 20 Sen (1981,
1982) viewed regressive transfer as a perfectly suitable requirement for an income
inequality measure, but less compelling as an axiom for a poverty measure. Any
poverty measure satisfying the strong version of the transfer axioms considers ‘the
poverty-alleviating role of crossing the poverty line … less crucial.’ However,
Sen’s arguments can hardly defend the following inconsistency: any transfer from
a poor person to a richer poor person (remaining in poverty after the transfer) or
to a nonpoor person increases the poverty level, while the transfer may lower the
poverty level if the recipient is next to the poverty line and the transfer lifts him
out of poverty. As a matter of fact, when continuity is maintained, any poverty
measure satisfying weak transfer will also satisfy regressive transfer and
progressive transfer (Donaldson and Weymark (1986)). 21 Because continuity and
weak transfer have been justified to be very reasonable, both regressive transfer
and progressive transfer can therefore be well justified. 22 Subsequently, we use
regressive transfer as a basic property for a distribution-sensitive poverty
measure. 23
Besides the focus axiom, the monotonicity axiom, and the transfer axiom, Sen
(1976) also proposed several other more specific axioms. Because those axioms
served only for the formulation of the measure proposed by Sen and have not been
widely recognized, we will not discuss them here. For a good discussion on those
axioms, see Foster (1984).
Kakwani noticed the lack of sensitivity of the Sen measure to the income level
of transfer. He argued that a poverty measure should be more sensitive to what
happens among the bottom poor. 24 Kakwani (1980a) proposed three sensitivity
axioms, two on income transfer and one on income increment/decrement.
Monotonicity Sensitivity Axiom: P(x,; z) − P(x; z) > P(x,; z) − P(x; z)
whenever x, and x- ‰ D are obtained from y ‰ D by the same amount of
decrement to poor incomes yi and yj, respectively, where yi < yj. 25
This axiom says that a poverty measure should be more sensitive to a drop in a
poor person’s income, the poorer the person is. It is interesting to note that this
axiom is identical to minimal transfer (Kakwani (1980a)). Therefore, minimal
transfer has another interesting interpretation, and the justification for minimal
transfer can serve for monotonicity sensitivity as well. Just like the independence
between the monotonicity axioms and minimal transfer, monotonicity sensitivity
does not necessarily imply weak monotonicity. By definition, monotonicity
sensitivity concerns the sign of the difference between P(x,; z) − P(x; z) and P(x-
; z) − P(x; z) not the sign of P(x,; z) − P(x; z) or P(x-; z) − P(x; z). Therefore, it
is not safe to assume that a poverty measure satisfying monotonicity sensitivity
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134 BUHONG ZHENG

must also possess at least weak monotonicity. 26 An example is the Takayama


poverty measure, which we will discuss later.
Weak Transfer Sensitivity Axiom: P(x; z) > P(x,; z) whenever x and x, ‰ D are
obtained from y ‰ D by transferring income δ (>0) from poor incomes yi to y j
and from poor incomes y k to y l respectively with yj − yi = yl − y k > δ, yk > yi with
no one crossing the poverty line after the transfers. 27
The axiom given here is due to Kakwani (1980a). 28 The basic idea of this
axiom is that the poverty assessment should give more emphasis to transfers
taking place down in the distribution, other things being equal. Although the
transfer sensitivity axiom has been used in measuring income inequality and
poverty, a complete definition for it was not given until Shorrocks and Foster
(1987). They considered the weak form of transfer sensitivity as placing ‘too
many constraints on … transfers’ and ‘relatively few transfers satisfy the
requirements’ (Shorrocks and Foster, 1987). They gave a general definition for
transfer sensitivity for the measurement of income inequality, and subsequently
introduced it into poverty measurement (Foster and Shorrocks, 1988a).
Transfer Sensitivity Axiom: P(x; z) < P( y; z) whenever x ‰ D is obtained from
y ‰ D by a favorable composite transfer (FACT): a progressive transfer of
income δ (>0) from y j to y i and a regressive transfer of income ρ (>0) from yk to
y l, i.e., x = y + δ(ei − ej ) + ρ(el − rk ) with σ 2 (x; z) = σ 2 ( y; z), yi < yj á y k á y l < z,
and x i á xj á xk < kl < z.
The difference between weak transfer sensitivity and transfer sensitivity is that
the former requires P(x; z) < P( y; z) to be true only for all equal-amount and
equal-distance transfers among the poor; the latter requires P(x; z) < P( y; z)
to  be  satisfied for any variance-preserving and mean-preserving composite
transfer. The amounts of two transfers for transfer sensitivity do not have to be the
same and the distances between two pairs of persons involved do not have to
be  equal. To put it more precisely, the amount of transfer from yj to yi, ρ, the
amount of transfer from yk to yl, δ, and yi , yj , ψλ, yk must observe the following
relation:
ρ 2 + ρ( yj − yi ) = δ 2 + δ( yl − ψk ) for yi < yj á y k á y l < z. (2.1)
Although transfer sensitivity is stronger than and theoretically superior to weak
transfer sensitivity, ‘the additional content is minimal’ and a poverty measure
satisfying the latter will most likely fulfil the ‘stronger’ requirement. When
evaluating a poverty measure, one may choose to use weak transfer sensitivity
instead of transfer sensitivity because the former is more intuitive and is easier to
be used to ‘screen’ poverty measures.
One must also exercise caution in interpreting the transfer sensitivity axioms. A
transfer sensitive poverty measure does not necessarily satisfy transfer axioms,
and transfer sensitivity is not ‘a stronger version’ of the weak transfer axiom as
some authors claimed. This may be a surprise to many casual observers. However,
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AGGREGATE POVERTY MEASURES 135

as Shorrocks and Foster (1987) noted, ‘it makes little sense to assume a measure
is transfer sensitive’ if transfer axioms are violated. Practically, such a concern
does not pose much problem.
Note that the above sensitivity axioms are only applicable to comparisons of
transfers within the poor where no one crosses the poverty line as a result of the
transfers. Following Donaldson and Weymark (1986) one may introduce other
axioms involving transfers which change the number of poor. For any focused,
continuous poverty measure, weak transfer sensitivity is equivalent to the
following stronger axiom:
(Stronger) Weak Transfer Sensitivity Axiom: P(x; z) > P(x,; z) whenever x and
x, ‰ D are obtained from y ‰ D by transferring income δ (0 < δ á z − y l ) from yi
to yj and from yk to yl respectively with yj − yi = yl − yk > δ, yk > yi and yl < z.
The axiom stated above allows a poor person to cross the poverty line as a
result of the regressive transfer. However one has to be cautious not to generate
weak transfer sensitivity to situations involving transfers between poor and
nonpoor because such an axiom may have absurd policy implications: to reduce
the poverty level government should always equalize the poor incomes first rather
than redistribute income from the rich to the poor!
Compared with transfer axioms, (weak) transfer sensitivity demands that a
poverty measure be even more sensitive to the income changes among the bottom
poor. It seems that no higher level of transfer sensitivity has been proposed in the
literature since Kakwani (1980a) and Shorrocks and Foster (1987), though one
certainly could do so in a similar fashion. 29 Since a higher level sensitivity axiom
requires a measure to be even more sensitive to what happens to the bottom poor,
it is an open question as to the extent this sensitivity should be. The suggested
justifications for transfer sensitivity (or any higher level of sensitivity) are very
meagre and are less convincing than those for the transfer axioms. Furthermore,
transfer sensitivity may have somewhat arguable redistribution policy
implications: the most effective transfers are those among very poor incomes, and
government should equalize the two poorest incomes first and then equalize them
with the third poorest income and so on… . 30 However, since this axiom is
independent of other existing axioms we keep it as a ‘core’ axiom.
Two popular axioms suggested in recent literature are the subgroup consistency
axiom and the decomposability axiom. Foster and Shorrocks (1991) discussed the
former, while decomposability first appeared in Hamada and Takayama (1977)
and was subsequently discussed by Kakwani (1980b) and Foster, Greer, and
Thorbecke (1984) in different senses. 31 The necessity for a measure of
decomposability arose from practical considerations (for instance, Anand (1977)
and van Ginneken (1980)). The decomposability axiom most often used today is
due to Foster, Greer, and Thorbecke (1984).
Subgroup Consistency Axiom: P(x; z) < P( y; z) whenever x = (x, , x- ) ‰ D is
obtained from y = ( y, , y- ) ‰ D with n(x, ) = n(x- ), n( y, ) = n( y- ) and
P(x,; z) < P( y,; z), P(x-; z) = P( y-; z).
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136 BUHONG ZHENG

Decomposability Axiom: For x = (x, , x- ) ‰ D with n(x) = n(x, ) + n(x- ),


††n†(x†,…) ††n†(x†-…)
† †

P†(x;… z) = P†(x…,; z) + P†(x†-; z), (2.2)


†††n†(n) †††n†(x)
or equivalently,
† n
††1
P†(x;… z) = 4 p†(x…i…, z), p†(x…i…, z) = 0 for x…i ñ z…. (2.3)
†††n†(x) i=1

The subgroup consistency axiom is desirable for a poverty measure. Foster and
Shorrocks (1991) compared this axiom to the monotonicity axiom. While the
latter is concerned with the change in an individual’s poverty status, subgroup
consistency is about the change in a subgroup’s poverty level. They argued that a
subgroup consistent poverty measure is very useful for policy purposes because
consistency ‘is needed to coordinate the effects of a decentralized strategy
typically involving a collection of activities targeted at specific subgroups or
regions of the country.’
One typical feature of a decomposable measure is that it can decompose overall
poverty into that of subgroups according to certain characteristics. A
decomposable poverty measure is also subgroup consistent and meets the need of
a decentralized strategy towards poverty alleviation. The use of a decomposable
measure allows policy-makers to identify subgroups particularly susceptible to
poverty and to design effective, consistent national and regional anti-poverty
strategies. Furthermore, it can be used to construct profiles of poverty and to
evaluate each subgroup’s contribution to overall poverty. The marginal
contribution of a subgroup’s poverty to overall poverty is recorded by its
population share — the coefficient in (2.2).
Foster and Shorrocks (1991) found that a closer link exists between the class of
subgroup consistent poverty measures and the class of decomposable poverty
measures. They showed that for any subgroup consistent poverty measure that
satisfies continuity (may be restricted continuity), replication invariance and is
nondecreasing in income, there exists some decomposable poverty measure,
P, (x; z), and a continuous and increasing function F such that
P(x; z) = F[P, (x; z) ] for all x ‰ D. (2.4)
A direct, and perhaps the most important, implication of the result in (2.4) is that
it shows a direct relationship between subgroup consistent poverty measures and
decomposable poverty measures. All decomposable poverty measures are subgroup
consistent and all subgroup consistent poverty measures, under some reasonable
conditions, are increasing transformations of some decomposable poverty measures.
Some may regard decomposability as putting too detailed a restriction on the
functional form of a poverty measure rather than on its properties. Foster and
Shorrocks’ (1991) above finding between the subgroup consistent poverty measure
and the decomposable poverty measure justifies the use of a decomposable measure
given that a poverty measure is unique up to an increasing transformation.
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AGGREGATE POVERTY MEASURES 137

Recently, subgroup consistency (decomposability) has gained wide recognition


in the literature and decomposable poverty measures have become very popular.
Nevertheless, Sen (1992, p. 106, n 12) questioned the appropriateness of
decomposability. He believed that one group’s poverty may be affected by what
happens to other groups. Since the additional requirements of subgroup
consistency over decomposability are not substantial and not controversial, one
can rephrase Sen’s criticism as a doubt on subgroup consistency — the overall
poverty level, ceteris paribus, does not have to go up (may even go down) as a
consequence of an increase in the poverty level of a subgroup. However, such an
argument is quite inconsistent with the general perception of poverty and of
changes in poverty. We believe that subgroup consistency is consistent with the
notion of poverty changes and hence can be well justified as a basic axiom.
Kundu and Smith (1983) proposed two population monotonicity axioms. They
were concerned with the behaviour of a poverty measure when it is used to
compare income distributions of different population sizes. Before Kundu and
Smith (1983), all discussions assumed a fixed population. The two population
monotonicity axioms are
Poverty Growth Axiom: P(x; z) < P( y; z) whenever x ‰ D is obtained from
y ‰ D by deleting a poor person from the population.
Nonpoverty Growth Axiom: P(x; z) < P( y; z) whenever x ‰ D is obtained from
y ‰ D by adding a nonpoor person to the population.
Kundu and Smith (1983) showed that these two population monotonicity
axioms are not compatible with regressive transfer: there is no poverty measure
that can possess poverty growth, nonpoverty growth and regressive transfer. 32 A
poor person can be made nonpoor via two routes: a simple increment and a
transfer from poorer persons. The intuition behind the conflict between the
population monotonicity axioms and the transfer axiom is that they predict the
opposite directions about the change in the poverty level as a result of the line-
crossing; poverty growth and nonpoverty growth suggest that the poverty level
should go down while the transfer axiom implies that the poverty level should go
up (or not go down). Kundu and Smith blamed this ‘impossibility’ on regressive
transfer, which fails ‘to distinguish those income transfers which actually alter the
size of the poor population.’ They defended both poverty growth and nonpoverty
growth, ‘there appears to be … less room for modification,’ while considering
regressive transfer as ‘the most conspicuous candidate for modification’ toward
some weaker form in order to construct a possible poverty measure. However,
such a modification is not warranted because several weaker requirements
combined may necessarily imply a stronger one, e.g, the weaker form of
regressive transfer, say weak transfer, and continuity jointly will imply
regressive transfer as shown by Donaldson and Weymark (1986). One might
argue that by adding poor persons who are ‘richer’ than the average poor person,
the degree of poverty may thereby be decreased. Kundu and Smith believed that
such an argument ‘ignores the relevance of a poverty line altogether.’ The poverty
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138 BUHONG ZHENG

growth axiom Kundu and Smith proposed goes to another extreme. It ignores the
distributional changes resulting from the adding of a poor person completely.
Imagine a society where everyone is poor with almost no income. One day people
of the same population size from another country migrate to this isolated land.
These new people are not rich but have incomes close to the poverty line, which is
not zero. It is peculiar to argue that the new society becomes poorer because of the
migration of these people. Even consider the case where there is at least one
person to be nonpoor as demanded by Kundu and Smith, it is still difficult to
maintain poverty growth. The consideration of others of the aforementioned
axioms may throw some light on these two population monotonicity axioms.
The replication invariance axiom, strong monotonicity (or weak monotonicity
and continuity) and the focus axiom combined will necessarily imply nonpoverty
growth, while poverty growth will hold if the entrant has an income no higher
than the poorest person. 33,34 The reason that these two axioms cannot be equally
justified is the asymmetric treatment of the poor and the nonpoor: when adding a
nonpoor person we know that he has at least an income above the poverty line and
the exact amount of income does not matter; while for the adding of a poor
person, the exact income does matter. We pointed out that poverty growth may be
a quite appropriate axiom for measuring the scope of poverty but not for
measuring the intensity of poverty and poverty in general. As a matter of fact, the
only decomposable poverty measure that satisfies both poverty growth and
nonpoverty growth is the linear transformation of the headcount ratio. 35 Therefore,
this result and the one given by Kundu and Smith suggest that there is no strong
reason to maintain poverty growth. Sen (1981, p. 193) believed that the two
population monotonicity axioms are ‘really very demanding,’ we have shown here
that nonpoverty growth is not demanding at all while poverty growth cannot and
should not be treated as an axiom for a measure of poverty intensity.
Note that nonpoverty growth (or strong monotonicity and replication
invariance) implies that a poverty measure is a decreasing function of the
population size of the nonpoor. Therefore a poverty measure is independent of the
income distribution of the nonpoor (by the focus axiom) but is dependent on the
population size of the nonpoor.
Two other invariance axioms concern the behaviour of a poverty measure when
all poor incomes are uniformly changed. They are
Scale Invariance Axiom: P(x,; z, ) = P(x; z) whenever (x,; z, ) ‰ D × D is
obtained from (x; z) ‰ D × D by a relative change.
Translation Invariance Axiom: P(x,; z, ) = P(x; z) whenever (x,; z, ) ‰ D × D is
obtained from (x; z) ‰ D × D by an absolute change.
Blackorby and Donaldson (1980) incorporated these two concepts into the
study of poverty measurement. 36 They referred to the poverty measures satisfying
scale invariance as ‘relative measures’ and the measures satisfying translation
invariance as ‘absolute measures.’ Because most existing poverty measures are
relative, it is useful to discuss the contents of scale invariance. The scale
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AGGREGATE POVERTY MEASURES 139

invariance axiom has two implications: one for nominal income and the other for
real income. The axiom in the first sense says that the poverty value is unaffected
by either the unit or currency against which income is measured. It does not matter
whether one uses cents versus dollars, or U.S. dollars versus British pounds; the
poverty value should be unit-free. The axiom in this sense may sound ‘reasonable’
and would be well justified. However, one may argue that such a requirement is
only a practical convenience and not a theoretical necessity. We may always
compare physical good (real income) rather than nominal income. The
justification of the axiom in terms of real income is even more questionable. The
axiom in this sense requires the doubling of all real incomes and the real poverty
line to leave the poverty value unchanged. While no solid justification for this
axiom in this sense has been made, it is certainly nonsensical in a case where
some people have no incomes or negative incomes. If all incomes and the poverty
line are doubled, then those with negative incomes become poorer, and those with
incomes of zero experience no change. Income inequality and poverty should
increase rather than remain unchanged in this case. While these two senses of
scale invariance can be distinguished economically, it is impossible to separate
them mathematically. One way to avoid the nonsensical situation is to require a
positive income, which is not an unreasonable requirement as long as we treat
poverty value as a function of income only. 37 There has been no economically
solid justification for translation invariance. Hence, according to the criteria for
an axiom in the general measurement theory (e.g. Krantz et al., 1971), neither
scale invariance nor translation invariance can be regarded as a basic axiom for a
poverty measure; each requirement only identifies a special class of poverty
measures.
Be that as it may, there is a widespread interest in these two classes of measures
for their special functional forms and it is useful to investigate the properties each
class of measures possess and the interactions between them. In investigating a
class of subgroup consistent poverty measures, Foster and Shorrocks (1991)
proved that the only restricted continuous, replication invariant poverty measures
that are both relative and absolute are continuous, increasing transformations of
the headcount ratio. One implication of their result, though not stressed by them,
is that there is no distribution-sensitive poverty measure that can be both relative
and absolute within the class of subgroup consistent, replication invariant, and
continuous poverty measures. 38 In a recent paper, Zheng ( 1994) showed that
Foster and Shorrocks’ implication can be greatly strengthened: the only focused,
restricted continuous poverty measures that are both relative and absolute are
those related to head counts, i.e., P(x; z) = f (q(x; z), n(x)). Therefore, there is no
distribution-sensitive poverty measure, not just within the subgroup consistent
subgroup, that can be both relative and absolute.
Increasing Poverty Line Axiom: P(x; z) < P(x; z, ) whenever z < z,.
This axiom is very reasonable: between two identical societies, the one with the
higher poverty line must also have higher poverty level. The first authors to list it,
implicitly and explicitly, as a requirement for a poverty measure were Clark,
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140 BUHONG ZHENG

Hemming, and Ulph ( 1981 ) and Chakravarty (1983a), respectively. Although


this axiom is not demanding at all, surprisingly, several measures of poverty
violate it. 39 Since this axiom is the only one regarding the behaviour of a poverty
measure when the poverty line changes, we list it as a basic property for a poverty
measure. Note that for either relative or absolute poverty measures this axiom may
be automatically satisfied because it can be easily shown that for both relative and
absolute measures, strong monotonicity and the focus axiom will necessarily lead
to increasing poverty line.
The last axiom considered in this survey is the normalization axiom:
Normalization Axiom: P(x; z) = 0 if Dp (z) = ∅, i.e., no one lives in poverty.
€This axiom does not put much serious constraint on a poverty measure. It says
that a zero poverty value means no poverty, so the ‘0’ is a real zero. Therefore, a
poverty index can assume any nonnegative value. Most literature also requires the
poverty measure to be no more than one. There is no strong reason for requiring
this. The above axiom is the less stringent normalization condition employed by
Foster and Shorrocks (1991).

2.2.2 A classification of axioms: core axioms, implied axioms, and ad hoc axioms

€Based on the above discussions, we can classify all axioms into three groups.
The first group is the basic axioms a ‘good’ poverty measure possesses. These
axioms are also ‘core’ axioms in the sense that they are independent and jointly
they can formulate other reasonable axioms. This group consists of
Focus axiom,
Symmetry,
Replication invariance,
Continuity,
Increasing poverty line,
Regressive transfer,
Weak transfer sensitivity, and
Subgroup consistency.
The focus axiom is very important for us to construct a good poverty measure. It
says that poverty measurement primarily concerns the poor, not the nonpoor.
Symmetry allows the use of an index number to represent the poverty level and its
changes. Replication invariance makes the comparison of poverty levels between
different population sizes possible. Continuity concerns the inaccuracy of income
data, the smoothness of crossing the poverty line as well as the manner in which
poverty changes as the poverty line changes. Increasing poverty line requires the
poverty level to increase as the poverty line rises. The regressive transfer axiom
ensures that the poverty measure is concave toward the origin: a transfer of
income from anyone poor to anyone richer will increase the poverty value. The
weak transfer sensitivity axiom requires a poverty measure to put more weight on
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AGGREGATE POVERTY MEASURES 141

a transfer down in the distribution. Finally, subgroup consistency imposes


‘subgroup monotonicity’ in the sense that any local effort in reducing poverty will
be recorded in the overall change in the poverty level.
The second group includes all other reasonable axioms which can be implied by
the axioms in the ‘core’ group and those axioms that are not very restrictive:
Weak (Strong) monotonicity,
Nonpoverty growth,
Minimal (Weak) transfer,
Monotonicity sensitivity,
Progressive transfer,
Transfer sensitivity,
Normalization,
Decomposability, and
Restricted continuity.
When considering a transfer between a poor person and a nonpoor person,
regressive transfer implies the weak monotonicity axiom, which, together with
continuity, justifies the strong monotonicity axiom. Nonpoverty growth can be
derived from the focus axiom, replication invariance, regressive transfer and
continuity. Regressive transfer includes minimal transfer, weak transfer and
monotonicity sensitivity which is equivalent to minimal transfer. Regressive
transfer, together with continuity, also implies progressive transfer. Transfer
sensitivity and normalization do not impose much restriction. This group also
includes decomposability, which is closely connected with subgroup consistency
and several other axioms in the first group.
The third group encompasses all those that cannot be justified. Among them are
poverty growth, scale invariance, translation invariance and various other
axioms in the literature, including, perhaps, some of the axioms Sen proposed in
addition to his three basic ones.
The ‘core’ axioms together have a strong implication on the functional form of
the satisfied poverty measures. Foster and Shorrocks ( 1991 ) showed that any
focused poverty measure that satisfies symmetry, continuity, replication invari-
ance, and subgroup consistency and is nondecreasing in income can be expressed
as an increasing transformation of some decomposable poverty measure, i.e.,
† g
††1
P†(x;… z) = F‰
†††n 4
i=1
p†(x…i…, z) †, (2.5)

where F is a continuous and increasing function. Additional consideration of


regressive transfer, weak transfer sensitivity, and increasing poverty line further
specifies the form of the individual poverty deprivation function p:

††∂…p ††∂ †p ††∂ †p ††∂…p


† † 2 † 3 †

` 0, p 0, ` 0, and p 0.
†††∂…x †††∂…x 2 †††∂…x 3 †††∂…z
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142 BUHONG ZHENG

3. Poverty measures
Since Sen’s path-breaking work on poverty measurement, scholars have proposed
more than a dozen new distribution-sensitive poverty measures. All these new
measures can generally be classified into three broad categories. The first class
consists of the Sen-type measures. These measures were proposed within the
framework set up by Sen, using the rank of each poor person within the poor (or
the population) as an indicator of the relative deprivation. The second class
includes all distribution-sensitive measures which incorporate Sen’s consideration
of inequality among the poor in a poverty measure. These measures replace the
Gini coefficient which Sen used with other inequality measures. The third class
encompasses all subgroup consistent measures, i.e., those given by (2.5).
In what follows, we will briefly discuss each poverty measure and check the
basic axioms it satisfies or violates. The complete list of the axioms each measure
satisfies or violates is given in Table 3.1.
Class 0: Distribution-Insensitive Poverty Measures
This class includes three poverty measures: two official ones and their product.
These three measures are not distribution-sensitive. They are focused, replication
invariant and restricted continuous. They also satisfy normalization and subgroup
consistency but violate all transfer and sensitivity axioms.
There are two official poverty indicators, the headcount ratio, H(x; z), which
has been used and is being used by most governments across the world and the
United Nations, and the income gap ratio, I(x; z), which is used by the United
States Social Security Administration. The former is defined as the ratio between
the number of the poor and the population size, the latter is defined as the
percentage of the average income short-fall of the poor to the poverty line, i.e.,
†
††q†(x;… z)
H†(x;… z) = †, (3.1)
†††n†(x)
where q is the number of the poor and n is the population size, and
††µ…p†(x;… z)
†

I†(x;… z) = 1 − †, (3.2)
†††z
where µ p is the mean income of the poor.
The main motivation for Sen to propose a new poverty measure was the
theoretical deficiency of these two official measures. Sen noted that the headcount
ratio satisfies the focus axiom, but violates two other axioms he proposed. The
income gap ratio does not satisfy the weak transfer axiom and strong mono-
tonicity (it satisfies weak monotonicity). Therefore, these two measures are not
distribution-sensitive. The income gap ratio also violates the increasing poverty
line axiom. Both H(x; z) and I(x; z) are subgroup consistent, H(x; z) is also
decomposable but I(x; z) is not decomposable in the sense defined in Section 2. 40
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Table 3.1. Axioms of poverty measurement and poverty measures

Class 0 Class 1 Class 2 Class 3


Axioms and
measures H I HI S K T Ta C1 BD Ch Ch C2 F W H HD

Focus axiom 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3
Symmetry 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3
3 3 3 7 7 7 3 3 7 7 3 3 3 3 3 3

AGGREGATE POVERTY MEASURES


Replication invariance
Continuity 7 7 3 7 7 3 3 7 7 3 3 3 3 3 3 3
Increasing poverty line 7 7 7 3 3 3 7 3 7 3 3 3 3 3 3 3
Regressive transfer 7 7 7 7 7 3 7 7 7 3 3 3 3 3 3 3
Weak transfer sensitivity 7 7 7 7 7 7 7 3 7 7 3 3 3* 3 3 3
Subgroup consistency 3 3 3 7 7 7 7 7 7 7 3 3 3 3 3 3
Weak monotonicity 7 3 3 3 3 3 7 3 3 3 3 3 3 3 3 3
Strong monotonicity 7 7 3 3 3 3 7 3 7 3 3 3 3 3 3 3
Minimal transfer 7 7 7 3 3 3 3 3 3 3 3 3 3 3 3 3
Weak transfer 7 7 7 3 3 3 7 3 3 3 3 3 3 3 3 3
Progressive transfer 7 7 7 7 7 3 7 7 7 3 3 3 3 3 3 3
Restricted continuity 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3
Decomposability 3 7 3 7 7 7 7 7 7 7 3 7 3 3 3 3
Nonpoverty growth 3 7 3 3 3 3 3 3 3 7 7 3 3 3 3 3
Normalization 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3
H: the headcount ratio; I: the income gap ratio; HI: the poverty gap ratio; S: the Sen measure; K: the Kakwani measure; T: the Thon measure; Ta : the
Takayama measure; C 1 : the Clark et al. ethical measure; BD: the Blackorby –Donaldson measure; Ch: the Chakravarty ethical measure; Ch : the Chakravarty
measure; C 2 : the Clark et al. measure; F: the Foster et al. measure; W: the Watts measure; H: the Hagenaars measure; HD: the Hagenaars –Dalton measure.
The Sen –Kakwani measure and the measures defined by Vaughan are not included.
3 : satisfies the axiom: 7 : does not satisfy the axiom or needs additional restrictions; *: satisfies the axiom for α > 2.

143
144 BUHONG ZHENG

Sen was not the first to notice the problems associated with the headcount ratio.
Eight years earlier, Watts (1968) made several points which were reflected in Sen
(1976). Besides the concerns for continuity, Watts also suggested that a poverty
measure should show that ‘poverty becomes more severe at an increasing rate as
successive decrements of income are considered.’ This is precisely the content of
minimal transfer or monotonicity sensitivity.
It seems that most people regarded the headcount ratio as a ‘crude’ and
theoretically inferior poverty measure. Atkinson (1987) was among the few
scholars who viewed this differently.41 He argued that ‘a minimum income may be
seen as a basic right, in which case the headcount may be quite acceptable as a
measure of the number deprived of that right.’ Atkinson implied that the
desirability of a poverty measure depends largely on the purpose of measurement.
When the poverty line is allowed to vary, the headcount ratio may prove to be the
most powerful measure as shown by Foster and Shorrocks (1988a, 1988b).
The poverty gap ratio is simply the product of the headcount ratio, H(x; z), and
the income gap ratio, I(x; z), and is denoted as HI(x; z). 42 This measure was first
mentioned by Sen (1976) and has been subsequently employed by Anand (1977,
1983) and Thon (1979). It is interesting to note that while HI(x; z) still violates all
transfer and sensitivity axioms, it satisfies some axioms which both H(x; z) and
I(x; z) violate, e.g., increasing poverty line and continuity. Although HI(x; z) is
not distribution-sensitive, empirically it may perform as well as other ‘good’
poverty measures.
Class 1: Sen-Type Poverty Measures
One feature in common for all measures in this class is that all use a poor
person’s rank within the poor (or the whole population) as an indicator of relative
deprivation. All measures are focused and symmetric. They also satisfy mono-
tonicity sensitivity, nonpoverty growth and normalization, but violate replication
invariance (except one version of the Sen measure) and subgroup consistency.
Motivated by the three basic axioms, Sen (1976) proposed a brand-new poverty
measure — the so-called Sen measure, which we denote as S(x; z),
† q
††2
S†(x;† z) =
†††(q + 1)†n…z 4
i=1
(z − x…i…)‰(q + 1 − i)†

†
††q
= H†(x;† z)† I†(x;† z) + (1 − I†(x; z))†Gp †,
†††q + 1
where G p is the Gini coefficient of the poor. 43 In addition to replication invariance
and subgroup consistency, this measure also violates regressive transfer,
continuity, and transfer sensitivity.
To justify his new measure, Sen used another set of axioms, and the three basic
axioms are automatically met by the measures satisfying the new axioms. 44 Foster
(1984) did an excellent job in reinterpreting Sen’s work, which we shall not
repeat. However, several comments are in order.
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AGGREGATE POVERTY MEASURES 145

First, the use of relative rank as the relative deprivation is not proper if more
specific income information is readily available. Sen (1981, p.36) defended the
use of relative position by quoting Borda regarding ‘choosing equal distance in the
absence of a convincing case for any alternative assumption.’ This may be a quite
strong argument in voting behaviour, where only ordinal rank is observed. In
poverty, where each poor person knows exactly his income distance from the
‘reference point’ — the poverty line (or maximum income of the population), it
is less convincing to use a person’s relative ranking, which is rarely known.
Atkinson (1987) also disagreed with Sen in this respect, he pointed out that ‘the
arguments about relative position and ranking are more persuasive for inequality
measurement than for poverty measurement.’ Besides, it is nonsensical to assign
two identical poor incomes with different weights if such a weight is interpreted as
a poor person’s sense of relative deprivation (Sen, 1976, p. 223, n 11).
Second, the Sen measure, S(x; z), does satisfy increasing poverty line, unlike
what Clark, Hemming and Ulph claimed (1981, p. 523, n 1). To see this, simply
rewrite S(x; z) as
† q † †
††2 ††x…i ††i
S†(x; z) =
†††n 4
i=1
1−
†††z
1−
†††q + 1
(3.4)

and note that as z increases, q + l may also increase, at least not decrease, and
each term is positive.
Third, there are two Sen measures in the literature, both proposed by Sen
(1976). One is given in (3.8) above while the other is its approximate form when
n(x) 2 ∞, i.e.,
S, (x; z) = H(x; z)[I(x; z) + (1 − I(x; z))G p ]. (3.5)
These two measures are not identical: S, (x; z) > S(x; z). The degree of
approximation of S, (x; z) to S(x; z) can be estimated as follows:
††Hµ…p†G…p
† † †
††q ††1
S,†(x;… z) − S†(x;… z) = á `
45
†. (3.6)
†††(q + 1)†z †††(q + 1)†n †††n
As a matter of fact, S, (x; z) is obtained from S(x; z) by replacing (q + 1 − i) with
(q + 0.5 − i) and (q + 1) in the denominator with q, i.e.,
† q
††2
S†(x;… z) =
†††qnz 4
i=1
(z − x…i)‰(q + 0.5 − i)†. (3.7)

Fourth, although S(x; z) approaches S, (x; z) when the population size is large,
they differ with respect to satisfying replication invariance. S(x; z) violates
replication invariance while S, (x; z) satisfies it, because the Gini coefficient as
Sen (1973a, p. 31) defined is replication invariant. 46 Even S(x; z) and other rank-
based poverty measures fail to satisfy replication invariance, they should not be
discarded for this sake since the violation does not cause any serious problem
when large sample microdata set is used. If we replicate distribution x m times and
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146 BUHONG ZHENG

denote the resulting Sen index as Sm (x), then we have the following relationship:
†
††1
S†(x) á  á Sm†(x) á  á S,(x)
† and 0 á Sm†(x) − S†(x) ` S,(x)
† − S†(x) ` ‰.
†††n
The first inequality reveals that the replication generally does not decrease the
poverty value. The second inequality indicates the maximum deviation of the
replicated poverty value away from the original poverty value, which is generally
very small — less than the inverse of the population size.
The failure of the Sen measure to satisfy the strong version of the transfer
axiom motivated Thon (1979) to propose a variation — the Thon measure. The
difference between the Sen measure and the Thon measure is the weighting
function. Thon used the rank of the poor person among the total population
instead of the poor group. The Thon measure, denoted as T (x; z), is
† q
††2
T†(x;† z) =
†††(n + 1) nz 4
i=1
(z − x…i)‰(n + 1 − i)†. (3.8)

The simple change in weighting function in the Sen measure makes the Thon
measure satisfy several axioms which the Sen measure violates. It satisfies
regressive transfer and is also continuous. As n and q become large, the Thon
measure approaches 47
T, (x; z) = H(x; z)[S, (x; z) + 2(1 − H(x; z))I(x; z)]
† q (3.9)
††2
=† 2
††n †z 4 (z − x…i) (n + 0.5 − i)†
i=1

which is a member of the class of measures that Thon (1983b) later proposed. 48
Based upon Sen’s framework, Kakwani (1980a) proposed a generalized version
of the Sen measure by changing the power of the weighting function from 1 to
k(k ñ 0). The new measure, denoted as K(x; z, k), is
† q
††q k
K†(x;… z, k) =
†
q 4 (z − x…i)†(q + 1 − i)… .
k i=1
(3.10)
† nz… 4 i†
†
i=1

In justifying his measure, Kakwani followed Sen’s approach but explicitly used
Sen’s three basic axioms in his derivation. However, for any given k there is a
population size n for which K(x; z, k) does not satisfies the transfer sensitivity
axioms (both weak and strong versions), though it satisfies the rank-based
sensitivity axiom Kakwani proposed (Foster, 1984, p. 230).
Takayama (1979) and Hamada and Takayama (1977) noticed Sen’s comments
on the relationship between the Sen measure and the Gini coefficient — a widely
used income inequality measure. They generalized the Sen measure in several
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AGGREGATE POVERTY MEASURES 147

directions. Takayama (1979) proposed a measure which is ‘a more natural


translation of the Gini coefficient from the measurement of inequality into that of
poverty’ (p. 748). In doing so, he defined a censored income distribution, x*, in
which all incomes above the poverty line are set to the poverty line, z. 49 His new
measure, Ta (x; z), is simply the Gini coefficient of the censored distribution, i.e.,
† † n
††1 ††2
T‰a†(x;… z) = 1 + − 4 (n + 1 − i)x…*i , (3.11)
†††n †††µ…0†n…2 i=1

where µ0 is the mean income of the censored distribution. When n(x) 2 ∞,


Ta (x; z) approaches
†
††1
Ta‰,†(x;… z) = 1 + † (T†,(x;
† … z) − 1), (3.12)
††1 + HI†… (x;… z)
where T, (x; z) is the Thon measure (3.9).
Indeed, the Takayama measure is a smoother translation of the Gini coefficient;
but such ‘advantage’ is obtained at a substantial cost. Ta (x; z) has been seriously
questioned by subsequent researchers. As Takayama himself admitted, his
measure may violate the monotonicity axioms, which is a serious drawback. 50 It
violates every axiom that the Sen measure fails to satisfy except continuity and
replication invariance. The claim by Takayama that Ta (x; z) is superior to S(x; z)
has been challenged by Foster (1984).
However, the concept of censored income distribution has been widely accepted.
This treatment of incomes above the poverty line is based upon Sen’s focus axiom.
Hamada and Takayama’s (1977) many considerations such as the decomposability
of a poverty measure have been materialized in subsequent research.
Class 2: Ethical Poverty Measures
€Researchers have extended Sen’s approach in another direction: using different
measures of income inequality or social welfare functions. The resultant measures
are generally labelled as ethical poverty measures since ‘each index is … implied
by and implies at least one social evaluation’ (Blackorby and Donaldson, 1980).
Because the properties that an ethical poverty measure depend critically upon the
specific social welfare function adopted, relatively little can be said about the
common characteristics that measures of this class may have.
Using the notion of a representative income which is similar to the Atkinson –
Kolm – Sen ‘equally distributed equivalent income’ in income inequality literature,
Blackorby and Donaldson (1980) reinterpreted the Sen measure as a product of
the headcount ratio and the percentage shortfall of the representative income of
the poor from the poverty line. 51 They show that ‘there is a Sen-like poverty index
for each social evaluation function defined over the poor.’ The new poverty
measure they proposed is
††ξ…p
†

BD†(x;… z, W)† = H†(x;… z) 1 − †, (3.13)


†††z
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148 BUHONG ZHENG

where ξ p is the representative income of the poor for an arbitrary (homothetic)


social welfare function W. 52
The Blackorby and Donaldson measures are very general; the Sen measure and
Kakwani measure are included in this class. The properties that this class of
measures may satisfy critically depend upon the specification of the social welfare
function. If W is completely recursive, continuous, monotonically increasing, S-
concave and symmetric, then the measures will be focused and symmetric and
satisfy restricted continuity, weak monotonicity and weak transfer. 53 With some
additional restrictions, BD(x; z, W) may also satisfy weak transfer sensitivity and
replication invariance. However, as pointed out by Chakravarty (1983b), the
measures, like those proposed by Sen and Kakwani, violate continuity, strong
monotonicity, and regressive transfer. 54 They also fail to satisfy subgroup
consistency.
Clark, Hemming and Ulph (1981) noticed that the Sen measure could be
written as a combination of the poverty gap ratio, HI(x, z), and the Gini
coefficient of the distribution of the poverty gap, which is
(z − x 1 , z − x2 , …, z − xq ). They then replaced the Gini coefficient with another
inequality measure — the Atkinson measure. The new measure, C1 (x; z, α), is
† † q †1/α
††q ††1 α
C…1†(x;… z, α)† = 4 (z − x…i) †, (3.14)
†††nz… †††q i=1

where α ñ 1.
This measure satisfies focus, weak monotonicity, and symmetry. It does not
satisfy regressive transfer, subgroup consistency, and continuity. Contrary to
their own discussion (Clark, Hemming and Ulph, 1981, p. 523, n 1), it does
satisfy increasing poverty line. To see this, simply rewrite C1 (x; z, α) as
† 1 − 1/α q † α 1/α
††q ††x…i
C…1†(x;… z, α)† = 4 1− ‰ †. (3.15)
†††n i=1 †††z
As z increases, q may also increase (at least not decrease). Therefore, because
α ñ 1, C 1 (x; z, α) is necessarily increasing. It is also interesting to note that as
†
††min†{x…i}
α‰2‰∞, C…1†(x;… z, α)‰2‰H†(x;… z)‰ 1 − †,
†††z
i.e., the poverty level is determined by both the headcount ratio and the Rawlsian
maximin justice.
By noting the failure of the Blackorby and Donaldson ethical measures to
satisfy both continuity and regressive transfer, Chakravarty (1983b) proposed an
ethical poverty measure which is the counterpart of the Atkinson inequality
measure and is a generalization of another class of poverty measures proposed by
Clark, Hemming, and Ulph (to be discussed in the next subsection). Instead of
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AGGREGATE POVERTY MEASURES 149

assuming a strictly recursive social welfare function, he applied a social welfare


function to the censored income distribution as introduced by Hamada and
Takayama (1977) and used the percentage gap between the representative income
of the censored distribution and the poverty line as a poverty measure, i.e.,
††ζ…z
†

Ch†(x;… z, W)† = 1 − ‰, (3.16)


†††z
where ζ z is the representative income of the censored income distribution. 55 These
measures satisfy many axioms that are violated by the Blackorby and Donaldson
ethical measure. However, additional restrictions must be imposed upon the social
welfare function in order for the measures to satisfy replication invariance,
nonpoverty growth, and subgroup consistency.
Kakwani (1980b) generalized the Sen measure in another direction; he dropped
the focus axiom and considered the whole income distribution. Furthermore, he
replaced the Gini coefficient with a function of the Gini coefficient. In the
literature, this measure is generally labelled the Sen – Kakwani measure and here
we denote it as SK(x; z, g):
†
††q
SK†(x;… z, g)† = [z − µ…p†g†(Gp)]†, (3.17)
†††nµ
…
with 0 á g(G p ) á 1 and g(Gp ) = 1 if Gp = 0, and g, (Gp ) < 0. Whereµ is the mean
income of the distribution and µ p is the mean income of the poor.
This measure satisfies very few axioms and is not appropriate to be used as a
measure of the intensity of poverty. According to this measure, other things being
equal, society can reduce the poverty level by simply making the rich richer,
which is contrary to most people’s perceptions of poverty.
Arguing that the development of poverty measures has followed a ‘positive’
approach and the welfare interpretation of any poverty measure is ‘ex post’,
Vaughan (1987) suggested that poverty indices can be viewed as the loss of
welfare which results from the existence of poverty. He incorporated social
welfare function, W, directly into the construction of poverty measures and
proposed classes of relative and absolute welfare poverty measures,
†
††W†(x)
V‰r‰(x;… z, W)† = 1 − †, (3.18)
†††W†(Óx)
and
V‰a‰(x;… z, W)† = W†(Óx)† − W†(x), (3.19)
where Ó x is derived from x by setting all poor incomes to the poverty line. These
two classes of measures are very general and, as pointed out by Vaughan, many
poverty measures can be embedded into these general classes. Without
restrictions, however, measures defined in (3.18) and (3.19) may violate many
axioms.
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150 BUHONG ZHENG

Class 3: Distribution-Sensitive, Subgroup Consistent Poverty Measures


The measures in this class have been very popular in recent years. All measures
in this class belong to the general category of poverty measures defined in (2.5).
One feature in common is that these poverty measures are subgroup consistent.
Therefore, they meet the requirement of decentralized strategies of anti-poverty
policies. All poverty measures in this class are also decomposable or can be
expressed as increasing transformations of some decomposable poverty measures.
The decomposable poverty measures can be used to construct a poverty profile —
the poverty level of each subgroup and the poverty contributions from each
subgroup. Each member of this class (for Foster et al. measure, α > 2) satisfies the
basic axioms for a poverty measure.
Following Sen’s axiomatic approach, Chakravarty (1983a) proposed a
decomposable measure. This was among the first distribution-sensitive measures
possessing this property. Unlike the approach of Sen (1976), Chakravarty derived
his measure by solving a functional equation, which directly takes the three basic
axioms into account. The measure, C(x; z, e), is
† q † e
††1 ††x…i
C…h†(x;… z, e) = 4 1− ‰ †,€0 ` e ` 1. (3.20)
†††n i=1 †††z

Ch (x; z, e) also satisfies transfer sensitivity and any higher level of sensitivity
axioms (if any). It also has a clear link to the normalized Theil entropy index
when one replaces z with the mean income µ, normalizes the measure and sums
over uncensored income distribution (Chakravarty, 1990, p. 191).
Foster, Greer, and Thorbecke (1984) proposed a class of poverty measures out
of practical demand for a decomposable poverty measure. With the exception of
the Chakravarty measure, Ch (x; z, e), all poverty measures proposed after Sen and
prior to Foster et al. (1984) are not decomposable in the sense defined above. The
difference between the Sen measure and the class of Foster, Greer, and Thorbecke
measures is the weighting functions. Foster et al. use the α − 1 (α ñ 0) power of
the income gap ratio between the poverty line and the poor incomes instead of the
relative rank. Their measure, F(x; z, α), is
† q † α
††1 ††x…i
F†(x;… z, α) = 4 1− ‰,€α ñ 0. (3.21)
†††n i=1 †††z

When α = 0, F(x; z, α) is H(x; z) and the weighting function is the inverse of


the individual income gap ratio; α = 1, F(x; z, α) is HI(x; z) and the weighting
function is 1. When α > 1, F(x; z, α) satisfies all axioms that the Chakravarty
measure satisfies except weak transfer sensitivity; when α > 2, F(x; z, α) also
satisfies weak transfer sensitivity. F(x; z, 2) can also be expressed as a function of
H(x; z), I(x; z) and an inequality measure (Foster, Greer, and Thorbecke, 1984):
F(x; z, 2) = H(x; z)[I 2 (x; z) + (1 − I(x; z)) 2 C 2 (x; z) ], (3.22)
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AGGREGATE POVERTY MEASURES 151

where C(x; z) is the coefficient of variation of the poor incomes. 56 If x i ñ 0, then


when α 2 ∞, F(x; z, α) 2 q0 / n with q0 being the number of zero incomes while
the transformation of the Foster et al. measure, [F(x; z, α)] 1/ α, approaches the
Rawlsian maximin justice and the well-being of the poorest persons dictates the
overall picture of poverty. 57
Harold Watts proposed the first distribution-sensitive poverty measure — the
Watts measure — in 1968. The measure given by Watts (1968) is
† q
††1
W†(x;… z) =
†††n 4
i=1
(l† n z − ln x…i)†, (3.23)

or
W(x; z ) = H(x; z)(ln z − ln ξ p ) = ln z − ln ζz (3.24)

where ξ p is the representative income of the poor and ζ z is the representative


income of the censored income distribution. Blackburn (1989) also showed that

W(x; z) = H(x; z)[Tl (x; z) − ln(1 − I(x; z)) ] (3.25)


where
† q†(x; z)
††1
T‰l†(x;… z) = 4 (l† n µ…p − ln x…i)†
†††q i=1

is an inequality measure proposed by Theil (1967).


However, Watts’ criticism of the headcount ratio as well as his new,
distribution-sensitive measure have been largely neglected in the literature,
although most people have adopted his definition of poverty. None of the
previous surveys has explicitly documented this measure. This neglect is due
partly to the fact that the Watts measure does not have an axiomatic
characterization, which makes the Watts measure difficult to be compared to
other distribution-sensitive measures. Recently, Zheng (1993a) provided such a
characterization for the Watts measure: the Watts measure is the only measure
under a set of axioms if a poverty index is regarded as the absolute social welfare
loss due to poverty.

Clark, Hemming, and Ulph (1981) also proposed a subgroup consistent but not
decomposable poverty measure. 58 The measure, C2 (x; z, β), is
† † n 1/β
††1 ††1 β
C…2†(x;… z, β)… = 1 − 4 (min†{x…i, z})… ,€β ` 1. (3.26)
†††z †††n i=1

A simple manipulation shows that C2 (x; z, β) can be expressed as a monotonic


increasing function of a decomposable poverty measure. For 0 < β < 1,
C2 (x; z, β) = 1 − [1 − Ch (x; z, β)] 1/ β, (3.27)
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152 BUHONG ZHENG

where Ch (x; z, β) is the Chakravarty measure given in (3.20). For β < 0,


à 2 (x; z, β)] 1/ β,
C2 (x; z, β) = 1 − [1 + C (3.28)
where
† q † β
††1 ††x…i
ÃC…2†(x;… z, β)… = 4 − 1 †.
†††n i=1 †††z
When β 2 0,
n 1†/†n
†
†† ‰ ; {min (x…i…, z)}
i=1 i
C…2†(x;… z, β)… = 1 −
−W†(x;† z)
†
=1−e †, (3.29)
†z
†

where W(x; z) is the Watts poverty measure.


The relationships in (3.27) to (3.29) are necessary results as predicted by Foster
and Shorrocks’ (1991) theorems. Empirical work often finds C 2 (x; z, β) with
negative value of β, or C Ã 2 (x; z, β), to be troublesome as the measure puts ‘too
much’ weight to what happens to the bottom poor. 59 In fact, as β 2 −∞,
C 2 (x; z, β) approaches
†
†† min {x…i}
i
1− †,
†††z
which is the Rawlsian maximin justice.
Hagenaars (1987) proposed a Dalton-type poverty measure based upon the
poverty threshold concept. The measure is simply the relative welfare poverty
measure V R (x; z, W) in (3.18) when the social welfare function is utilitarian and x
is the censored distribution. Assuming every person of the society has the same
utility function, U, the measures, HD(x; z,U), are
† n
† ††1
†† † 4 min {U†(x…i…), U†(z)}
††n i = 1
HD†
… (x;… z, U)† = 1 − †, (3.30)
†††U†(z)
or
††U†(ζ…z)
†

HD†
… (x;… z, U)† = 1 − †, (3.31)
†††U†(z)
where ζ z is the representative income of the censored income distribution and,
hence, U(ζ z ) is the representative individual utility. 60
The properties of this measure depend largely on the specification of U(x). If
U, > 0, then HD(x; z, U) satisfies the monotonicity axioms; if U, > 0 and U- < 0,
then HD(x; z, U) satisfies regressive transfer; if U. > 0, then HD(x; z, U) satisfies
weak transfer sensitivity. 61 When scale invariance is maintained, the Hagenaars
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AGGREGATE POVERTY MEASURES 153

measure collapses to the Chakravarty measure as shown by Chakravarty (1990).


When translation invariance instead of scale invariance is imposed, there is no
satisfactory poverty measure in this class. 62 The specific poverty measure
Hagenaars (1987) gave is
† q †
††1 ††ln x…i
H…(x;… z) =
†††n 4
i=1
1−
†††ln z
†, (3.32)

which is neither relative nor absolute but satisfies increasing poverty line.

4. Concluding remark
The purpose of this survey is to provide a clarification of the extensive literature on
poverty measurement since Sen (1976). To fully understand the justification of
each axiom and the interrelationships among axioms is important for poverty
measurement research because various axioms have been used to construct and
evaluate poverty measures. We show in this survey that the desirability of each
axiom cannot be evaluated in isolation; several weak axioms may necessarily imply
a stronger axiom or another ‘seemingly’ unrelated axiom; the combination of some
axioms may make it impossible to devise a satisfactory poverty measure. We also
show that several widely used axioms lack sufficient justifications and are
essentially ad hoc. Based upon the interactions and justifications, we identified a list
of ‘core’ axioms in that they are consistent with the perception of poverty and are
independent. These ‘core’ axioms can be used to ‘screen’ poverty measures and
jointly they can lead to a class of measures — subgroup consistent and distribution-
sensitive poverty measures. We also evaluate all existent poverty measures and
examine their properties against the ‘core’ axioms, and summarize the properties
each measure satisfies/violates in a tabular form — a practice which has never
been undertaken before. We also include several ‘good’ measures, especially the
Watts measure, which have not been documented by previous surveys.
By now, it is widely recognized that a measure of poverty intensity needs to
consider distribution-sensitivity in addition to counting the number of the poor and
calculating the average income shortfall of the poor. Started with Anand (1977),
distribution-sensitive poverty measures have been used to address various
distributional issues. The geographical coverage of the applications includes
Malaysia, Bangladesh, Iran, India, United Kingdom, United States, Canada,
Brazil, Finland, Sweden, Greece, Poland and the third world in general. However,
no single government (including the United Nations) has gone beyond the ‘crude’
practice of counting the number of the poor to include distribution-sensitive
measures. Even in academia, scholars are also yet to be convinced the necessity of
distribution-sensitivity for a poverty measure. For example, several recent leading
journal articles (Sawhill, 1988; Hanratty and Blank, 1992; and Slesnick, 1993) on
poverty changes used no other measures except the headcount ratio.
The persistence in using the headcount ratio as the only way in measuring
poverty changes can be attributed in most part by the following three factors. 63
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154 BUHONG ZHENG

First, the headcount ratio is a cardinal measure of poverty while all distribution-
sensitive measures are ordinal. Thus the headcount ratio is more intuitive and can
be easily interpreted and understood by non-specialists, especially policy-makers.
Second, distribution-sensitive measures are sensitive to the quality of income data
while the headcount ratio only needs the information on poverty status, i.e., a
person is above or below the poverty line. It follows that the headcount ratio may
be statistically more robust than other measures. Given the measurement errors
associated with income microdata, this is a significant advantage in using the
headcount ratio. Third, many practitioners may believe that the identification of
poor is more important than the aggregation of poverty. The headcount ratio
indeed provides an important aspect of poverty, namely, the incidence of poverty.
It is also ‘neat and well defined’ (Sen, 1992) and is ‘quite acceptable’ (Atkinson,
1987) for certain purposes of poverty measurement.
The aforementioned arguments, however, are not sufficient to justify the exclusive
use of the headcount ratio in poverty studies, especially when the poverty line is far
away from the ‘hunger line.’ Without using other measures, the ‘surprising’ findings
based upon head-counting and a single poverty line are not robust and may even be
misleading. For instance, Slesnick (1993) used data from the Consumer
Expenditure Survey and claimed, in contrast to public belief, that poverty in the
U.S. has actually become less severe in recent years. Given the drawbacks
associated with the headcount ratio, it would be interesting to know what
distribution-sensitive measures will reveal. The potential pitfall of concluding
poverty changes based exclusively upon the headcount ratio can be best illustrated
by a recent study of the U.S. poverty changes from 1975 to 1989 by Zheng et al.
(1995). Using data from the Current Population Survey, Zheng et al. (1995) found
that the proportion of the poor decreased from 1975 to 1990 but more people
concentrated at the lower end income distribution in 1990 than in 1975, and all
distribution-sensitive poverty measures indicated a significant increase in the
poverty level! Jenkins and Lambert (1993b) also showed the same discrepancy
between the headcount ratio and the distribution-sensitive measures in indicating the
UK poverty trends. Using the same microdata as in the official poverty statistics,
they found that all distribution-sensitive measures that they considered indicated an
increase in the poverty level while the headcount ratio showed a decline.

Acknowledgements
This survey is based on the second chapter of my Ph.D. dissertation. I am greatly indebted
to Brian J. Cushing, my thesis advisor, for his many valuable suggestions. I am also
grateful to an anonymous referee, John P. Formby, James E. Foster, Peter Lambert,
Anthony Shorrocks, and John Weymark for their very useful comments. Of course, all
remaining errors are mine.

Notes
1. Quoted from Himmelfarb (1984).
2. In income inequality studies, researchers have made substantial attempt to extend the
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AGGREGATE POVERTY MEASURES 155

measurement from uni-dimensional to multi-dimensional. Examples are Atkinson and


Bourguignon(1982), Kolm (1977), Maasoumi (1986) and Tsui (1995). Tsui (1994)
also made a useful attempt in measuring multi-dimensional poverty.
3. Zheng (1993b, Chapter 3) reviewed the literature on partial poverty orderings.
4. In a recent study of U.S. poverty changes from 1975 to 1989, Zheng (1993b) found
that either the use of two definitions of the poor has no effect on the total number of
poor or the difference is small enough to be negligible.
5. The literature has used these terms differently. Some authors referred to the poverty
measure defined here as an index; some referred to poverty value as a measure. The
definitions given above are more appropriate. The difference between measure and
index is similar to that between estimator and estimate in econometrics.
6. For example, if one wants to measure the difficulty of eliminating poverty by
redistributing income from the nonpoor to the poor, then the income distribution of
the whole population must be considered and the focus axiom is not appropriate.
However, thus defined, measure is not a ‘measure of the intensity of poverty.’
7. One may argue that an increase in a nonpoor income may exaggerate a poor person’s
relative deprivation and hence increase the poverty level. However, once the poverty
line is given, this argument is equivalent to saying that government can reduce poverty
by simply taking away some of nonpoor incomes and destroying them.
8. Seidl (1988) introduced a version of focus axiom which says a poverty measure is
independent of the number of nonpoor.
9. For the strong definition of the poor, one needs to set all nonpoor incomes to a level
above the poverty line.
10. As early as 1973, Dasgupta, Sen, and Starrett (1973) discussed this requirement in
their famous short paper which greatly extends Atkinson’s (1970) celebrated work on
comparing inequalities of income distributions. Atkinson established an unambiguous
relationship between Lorenz dominance and welfare ranking. However, this result is
built upon fixed population. Dasgupta et al. extended his result to variable population
cases by introducing the replication invariance axiom: the pooling of several identical
income distributions does not affect the level of income inequality.
11. This can also be phrased as requiring P(x; z) to be continuous in x i; in the
neighborhood of xi.
12. Foster and Shorrocks (1991) distinguished these two levels of continuity. Donaldson
and Weymark (1986) used continuity. It will not do any harm if continuity is replaced
with the stronger continuity introduced by Chakravarty (1983a), i.e., P(x; z) is
continuous in each argument — income and the poverty line. The stronger continuity
can be justified by also considering the imprecision of an appropriate poverty line.
13. Note that any continuous (not restricted continuous) poverty measure makes no
difference between two definitions of the poor since the poor people at the poverty
line have no effect on the poverty value. Hence, if continuity is a desirable property as
we stated here, there is probably no need to specify which definition of the poor is
used.
14. However, this would be a nonsensical requirement if one is interested in measuring the
chronicle of poverty or lifetime poverty.
15. Donaldson and Weymark (1986) used the terms ‘downward monotonicity’ and
‘upward monotonicity.’ Seidl (1988) changed them to ‘weak monotonicity’ and
‘strong monotonicity.’ Seidl’s terms are more appropriate since strong monotonicity
implies weak monotonicity.
16. In the case of the strong definition of the poor, the justification for strong monotonicity
runs into difficulty when it applies to the poor person exactly at the poverty line. In
this case, any additional amount of income to the poor person will bring him out of
poverty and therefore reduce the total number of the poor, while ‘for a focused
poverty index, one might be satisfied if the value of the index is unaffected by such a
change’ (Donaldson and Weymark (1986)). In fact, they showed that for any focused
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156 BUHONG ZHENG

poverty measure, if it is continuous at the poverty line, then it cannot satisfy strong
monotonicity for the strong definition of the poor.
17. This axiom first appeared in the income inequality measurement literature back to
early this century. Dalton (1920) discussed this property in his now classical paper on
income inequality. He referred to it as the ‘principle of transfers’ and shared the
proposal of this axiom with Pigou.
18. Donaldson and Weymark (1986) named regressive transfer and progressive transfer
the ‘strong downward transfer axiom’ and ‘strong upward transfer axiom.’ The terms
used here are more straightforward and succinct.
19. Kundu and Smith (1983, n 3) also distinguished regressive transfer and progressive
transfer in proving their ‘impossibility theorem.’
20. The transfer of income from a poor person to a richer poor person may result in lifting
the second person out of poverty, in this case the Sen measure may indicate a decrease
in the poverty level rather than an increase.
21. For the strong definition of the poor, Donaldson and Weymark showed that no focused
poverty measure can obey progressive transfer.
22. In fact, of all distribution-sensitive poverty measures, only those whose values depend
on the ranks of the poor among the poor group (or population) may violate regressive
transfer and progressive transfer.
23. It is useful to notice that a focused poverty measure satisfying regressive transfer and
restricted continuity will also satisfy continuity, i.e., regressive transfer contains
continuity at the poverty line under certain conditions.
24. The sensitivity axiom Kakwani proposed, like the transfer axiom, was also discussed
earlier in the literature of income inequality measurement. Kolm (1976) labelled
transfer sensitivity the ‘principle of diminishing transfers.’
25. Originally, Kakwani proposed this axiom in the rank form, i.e., comparing the
increases in the poverty levels due to the decrements of incomes to two persons with
different ranks. Because two poor persons with the same income may be assigned
different ranks, what monotonicity sensitivity requires is nonsensical in this case. The
axiom stated here is more proper. Also note that this axiom, as well as minimal
transfer, can be stated as the comparison between two same-origin, same-direction but
different-distance transfers as follows: P(x,; z) > P(x,; z) whenever x, and x- ‰ D are
obtained from y ‰ D by the same amount of regressive transfer from i to j and k
respectively with xi á x j < x k < z and no one crosses the poverty line as a consequence
of the transfer. This equivalence can also be extended to other transfers when
continuity is assumed. Also see Cowell (1988) on this.
26. However, a poverty measure satisfying weak transfer will satisfy weak monotonicity.
27. By noting the equivalence between monotonicity sensitivity and minimal transfer, one
can also express this axiom as follows: P(x,; x) − P(x,; z) > P( y,; z) − P( y,; z)
whenever x, , x- and y, , y- are obtained from y ‰ D by the same amount of decrement
to y i , y j , y k , and y l respectively with y j − y i = y l − y k and y k > y i.
28. The version given here is so-called ‘distance transfer sensitivity’ (Seidl (1988)).
Kakwani also proposed a ‘rank transfer sensitivity’ property. For a discussion on these
two versions of sensitivity, see Foster (1984, p. 229).
29. For example, one could introduce an axiom which requires the reduction in poverty
through a favourable composite transfer (Shorrocks and Foster (1987)) to be
inversely related to the income level.
30. Lambert (1993) also questioned the desirability of ‘principle of diminishing transfers’
in income inequality context.
31. Foster, Greer, and Thorbecke (1984) proposed a subgroup monotonicity axiom, which
is weaker than the subgroup consistency axiom. The former requires a ceteris paribus
condition.
32. Note that Kundu and Smith used regressive transfer in a weak inequality form and
they restricted transfers within the poor. Also note that when relaxing any one of these
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AGGREGATE POVERTY MEASURES 157

three requirements, one can easily construct a satisfactory poverty measure. For
instance, poverty measure
† q † 2
††q ††x…i
P†(x;… z) =
†††n 4
i=1
1−
†††z

satisfies poverty growth, nonpoverty growth, weak monotonicity, weak transfer,


restricted continuity, and subgroup consistency.
33. For a censored income distribution x* with size n and the first q persons being poor,
the adding of one nonpoor person expands the distribution to y which has the size
n + 1. Replicate x n + 1 times and y n times, the new distributions x, and y, have the
same size n(n + 1). For either definition of the poor, strong monotonicity ensures that
x, has a higher poverty level than y,. By the replication invariance axiom, x also has a
higher poverty level than y — this is exactly what nonpoverty growth implies.
Similarly, the second half of the statement can be proved.
34. Kundu and Smith (1983) also showed that nonpoverty growth can be justified by
replication invariance and poverty growth. However, poverty growth is more
objective than nonpoverty growth.
35. The sketch of the proof: for any given decomposable measure we want to show that
the individual deprivation function p(x i, z) is a constant. If p(x i, z) is not a constant,
then for any given income distribution, we can replicate the poor population to form a
new distribution in which the addition of the smallest p(x i, z) will decrease the
poverty value and is contradictory to poverty growth. A detailed proof is provided in
Zheng (1993b). Also note that this result holds when decomposability is replaced by
subgroup consistency, replication invariance and restricted continuity. In this case the
satisfied measures are monotonic transformations of the headcount ratio.
36. Dalton (1920) was the first to discuss the effects of a relative change and an absolute
change in income inequality literature. Yet Dalton did not propose an ‘invariance
axiom.’ He believed that a relative change should increase income inequality, and an
absolute change should decrease income inequality. The first person to label them
‘axioms’ was Kolm (1976). In his lengthy and often cited paper, Kolm discussed the
desirability and implications of these two axioms. The inequality measures satisfying
these axioms were labelled ‘rightist’ and ‘leftist’ measures, respectively.
37. Actually, this practice is widely used in either theoretical or empirical research. See,
for example, Cowell (1984), Atkinson (1987, 1992) and Foster and Shorrocks
(1988a, 1988b).
38. When considering scale invariance and translation invariance in a ‘compatible’ sense
— both relative and absolute changes cause the poverty value to vary in the same
direction, Foster and Shorrocks (1991) provided an axiomatic characterization for the
measure proposed by Foster, Greer, and Thorbecke ( 1984).
39. However, Clark, Hemming, and Ulph (1981) mistakenly claimed, inter alia, that
several measures, including the one proposed by Sen (1976), violate the increasing
poverty line axiom.
40. Note that I(x; z) can be written as I(x; z) = (q 1 /q)I(x,; z) + (q 2 /q)I(x-; z) for two
subgroups x, and x- with q = q 1 + q2 . Hence I(x; z) may be regarded decomposable in
some other sense. See Hamada and Takayama (1977) for discussions on general
decomposability.
41. Hagenaars (1987) argued that H(x; z) is a good poverty measure if the poverty line is
a ‘hunger line.’ Sen recently (1992) also admitted that H(x; z) is ‘neat and well-
defined.’
42. There are several names for this measure in the literature, e.g., the Sen measure with
unity weights (Anand, 1977); the per-capita income gap (Foster & Shorrocks, 1988a,
1988b); poverty deficit (Atkinson, 1987); normalized deficit (Rodgers & Rodgers,
1991); income gap ratio (Foster & Shorrocks, 1991) and poverty gap ratio (Borooah
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158 BUHONG ZHENG

& McGregor, 1991). Correspondingly, there are also a half dozen names for I(x; z). In
this survey, we use ‘income gap ratio’ for I(x; z) as given by Sen (1976) and ‘poverty
gap ratio’ for HI(x; z).
† † q † q q
††1 ††2 ††1
43. G…p = 1 +
†††q

†††µ…p†q…2 4 (q + 1 − i)…†x…i =
i=1 †††µ…p†q…2 4 4 |‰xi − xj‰|,†
j=1 i=1

where µ p is the mean income of the poor.


44. Pattanaik and Sengupta (1995) recently characterized the Sen measure with a weaker
form of Sen’s normalization axiom, a version of Sen’s rank order axiom and a
continuity axiom.
45. Foster (1984, n 39) questioned the closeness of S, to S. (3.6) gives the upper bound of
the distance between S and S,.
46. Hoeffding (1948) defined a slightly different Gini coefficient,
† q q
††1
† µ…p†q†(q − 1) 4 4 |‰x…i − x…j‰|‰,
Gp = †
† j=1 i=1

which is not replication invariant.


47. Note that T, satisfies replication invariance.
48. Shorrocks (1995) axiomatically characterized this measure. He referred to this as a
‘modification of the Sen measure.’
49. Strictly speaking, this practice has some inconvenience for the strong definition of the
poor.
50. Kakwani (1981) showed that Ta (x; z) may violate the monotonicity axiom only when
the poverty line strictly exceeds the median income of the distribution.
51. A representative income is the income which, when equally distributed among the
poor, leads to the same level of welfare among the poor as the original distribution.
52. Blackorby and Donaldson (1980) labelled BD(x; z, W) as ‘relative poverty measure’.
They also proposed a class of ‘absolute poverty measures’ BDa (x; z, W) = q(x; z)(z − ξp ).
Bossert (1990) characterized BD(x; z, W) by using replication invariance and restricting
poverty measures to a special class which itself is not very different from BD(x; z, W).
53. A social welfare function is completely strictly recursive when the social welfare of
any poor group is independent of the distribution of any richer people. For a detailed
description of the notion see Blackorby, Primont, and Russell (1978).
54. Foster (1984) interpreted Blackorby and Donaldson measures as substituting the Gini
coefficient (among the poor) in the Sen measure with other inequality measures. He
pointed out that the resultant measures restrict the maximum value that an inequality
measure can take to be less than one and may also violate some basic axioms such as
weak monotonicity. We point out that the measures Blackorby and Donaldson
proposed and the measures Foster (1984) interpreted are not equivalent.
55. Chakravarty also proposed a class of absolute poverty measure in the same manner as
Blackorby and Donaldson did. Pyatt (1987) studied the class Ch(x; z, W) using the
notion of affluence and basic incomes and examined the implications when the
population equivalent income is the sum of equivalent income of affluence and the
equivalent basic income.
56. An obvious similarity exists between F(x; z, α) and C 1 (x; z, α): F(x; z, α) =
[H(x; z) ] 1 − α'C 1 (x; z, α) ] α. Hence one may regard the Foster et al. measure as
essentially the Clark et al. measure applied to the censored distribution.
57. Seidl (1988, p. 113) mistakenly claimed that F(x; z, α) possesses this property.
58. As a matter of fact, of all existing measures, this and another general class given by
Hagenaars (1987) are the only subgroup consistent measures which are not
decomposable but can be expressed as increasing transformations of some
decomposable poverty measures.
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AGGREGATE POVERTY MEASURES 159

59. See Cowell (1977, 1988) for discussions on a class of inequality measures which are
similar to the Clark et al. measure.
60. Hagenaars also proposed a measure which is Ch(x; z, W) when W is a utilitarian
function and the measure satisfies subgroup consistency and replication invariance, in
addition to axioms satisfied by Ch(x; z, W).
61. We assume that U satisfies all these conditions in Table 3.1.
62. The utility function will be an exponential function, which violates transfer
axioms.€€
63. I thank the referee for suggesting the following explanation.

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