Absolute Poverty: When Necessity Displaces Desire

Mar 2016 | 141

Authors: Robert Allen


Abstract:

This paper proposes a new method for defining an international poverty line based on explicit budgeting. The novel feature is that linear programming is used to deduce the diet that minimizes cost and guarantees survival. Nonfood items are also explicitly budgeted and amount to about one quarter of the cost of subsistence. A series of least cost diets are calculated with increasingly demanding nutritional requirements for twenty countries using prices from ICP 2011. The aim is to see which requirements rationalize the spending pattern of the poor. The ‘reduced basic’ model does the job. When the cost of the nonfood items are added to the cost of the ‘reduced basic’ diet, the resulting Linear Programming Poverty Line (LPPL) averages $1.88 per day across the poor countries in the sample. The same model rationalizes both the spending pattern of the poor and the World Bank Poverty Line. The LPPL has the advantages that it is (1) clearly related to survival and well being, (2) comparable across time and space since the same nutritional requirements are used everywhere, (3) adjusts consumption patterns to local prices, (4) presents no index number problems since solutions are always in local prices, and (5) requires only readily available information, namely, the prices in ICP or equivalent.

JEL Codes: I12, I32, O61, O63

Keywords: Absolute poverty, Diet problem, Linear Programming, World Bank Poverty Line


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