Poverty and Inequality

Maximizing or Satisfying? The Paradox of Choice

Sanity and happiness are an impossible combination.”
– Mark Twain –

As most economists, I have been thoroughly educated to believe that people maximize utility (well-being). Sometimes people do not appear to do so (at all!), but if you correctly take into account all benefits and costs, and the information set available, a good economist can explain almost every decision as being rational and utility maximizing.

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The Casino of Life: The odds of reducing inequality in a country like Bolivia

As a visitor to INESAD and La Paz, I am staying in a friendly hostel downtown. Last week I happened to stumble onto a Casino night organised by the owners. It was all for fun and no real money was exchanged. Everyone received 250 fake bolivianos (fbs) worth of chips. If you managed to do well and double your pot to 500 fbs then you could exchange them for a free drink.

I happened to be having dinner with some other travellers I had just met on a table which was destined for Black Jack. Now this was not like a real casino which to me can seem rather boring and somewhat lonely as players silently make bets and collect their winnings or losses. Instead the 10 players around our table had really gotten into the spirit of things and supported each other cheering and laughing through the whole game. Even the dealer was on our side. The positive atmosphere led Read More »

Doing well by doing good and doing good well

“We would like to believe that we are not in the business of surviving but in being good, and we do not like to admit to ourselves that we are good in order to survive.”
Dorothy Rowe
“But goodness alone is never enough. A hard cold wisdom is required, too, for good-ness to accomplish good. Goodness without wisdom invariably accomplishes evil.”
Robert Heinlein
“Never let your sense of morals get in the way of doing what’s right.”
Isaac Asimov

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Social Mobility in Bolivia is finally improving – and now I can prove it!

Back in 2006, I published a newsletter postulating that “Social Mobility in Bolivia is Finally Improving!” The article was based on casual observations (mostly Evo Morales becoming the President of Bolivia and a former maid becoming the Minister of Justice). Recently, however, I have made a formal, quantitative estimation of the changes in social mobility in all of Bolivia between 1997 and 2007, and the results are nothing short of spectacular! (1).

Social Mobility is an elusive concept that is difficult to estimate quantitatively, but a convenient methodology has been developed to estimate a Social Mobility Index based on information commonly available in standard household surveys. The methodology is based on the simple idea that social mobility is low if family background is important for a child’s future, while social mobility is high if all children have equal opportunities despite different family backgrounds (1).

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Is Poverty Alleviation harmful for the Environment (in the Bolivian forest conservation context)?

By Stanislaw Czaplick

Bolivia has an enormous natural resource potential that properly managed could promote economic development and address the pressing need for poverty reduction.

There is a relatively new development policy approach, which combines environmental conservation and poverty reduction and which is based on the existence of a “Poverty-Environmental Degradation” nexus (P-ED nexus), resulting in “win-win opportunities”.

Acknowledging a variety of different relations between those two development issues there is a big debate (1) concerning the nexus nature, the conditions under which it applies and the intensity of its application. Nevertheless, academics (2) seem to agree on its general nature, concurring on the dual causal relation between environmental degradation and poverty.

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A Boom or a Boomerang: Reflections on Social Policy in Bolivia

By Natasha Morales

Social policy in Bolivia has changed substantially since the increase in world oil prices. According to the Supreme Decree 29565 enacted in May 2008, the increase of revenues coming from the direct hydrocarbon taxes (IDH) should be used, among others, for social protection programs. However, there is not a clear relationship between the logic of the intervention of social programs and the allocation of IDH resources.

As of two years ago, Bolivia was considered a low income country. During 2008, however, the high commodity prices (especially oil, minerals and soy beans) gave the country a strong comparative advantage, and the resulting GDP growth has caused Bolivia to shift to the medium income group.

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Poverty Highlights

Due to an excessive work load, this weeks’ newsletter will highlight a collection of earlier articles on the topic of Poverty.

Bolivians feel poor, but not that poor
(L. E. Andersen)

According to official estimates, there are at least 3 million extremely poor people in Bolivia (about 38% of the total population). Judging from their very low incomes, they shouldn’t be able to buy even the minimum basket of subsistence goods. The majority of people in this group does not have electricity in the house, and thus none of the convenient inventions that run on electricity. Still, only a minority of them (18.5%) actually feel extremely poor (Continue reading…)

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Marriage Markets in Bolivia

If people married each other more randomly, poverty levels would be considerably lower than they are now. If we abandoned all current family arrangements and randomly grouped all Bolivians into new families of 5 persons, poverty levels would fall by about 15 percentage points (from the current level of 55% of all households to about 40% of all households). The Gini coefficient measuring inequality would also fall from about 0.70 to 0.55 (1).

But Bolivians do not mix much in marriage. The correlation between partners’ education levels is extremely high at about 0.77, with no signs of falling (2). For comparison, the corresponding number for Germany is 0.52 and for Britain it is 0.41 (3).

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Inequality in Bolivia: Second Opinion

One of the newsletters last month (How unequal is Bolivia really?) argued that it is better to measure inequality on consumption than on income, as income is very imperfectly measured, especially in poor countries with a large share of self-employment. The newsletter also suggested that when measuring inequality on consumption, United States is probably more unequal than Bolivia. The latter appears to be incorrect, as one careful reader kindly pointed out.

The study by Krueger & Perri (2006) investigates the relationship between income inequality and consumption inequality in United States and find that the consumption based GINI coefficient is about 11 percentage points lower than the income based GINI coefficient (1), which would bring consumption inequality in the US much below consumption inequality in Bolivia.

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How unequal is Bolivia really?

It is difficult to imagine a country more unequal than Bolivia. Some people live in simple one-room dwellings without electricity, piped water, bathroom, or any other basic conveniences, and only get to spend a dollar on special days. Other people live in big mansions with home cinema, swimming pool, fitness room, and plenty of servants.

You don’t need to calculate Gini coefficients to see that Bolivia is clearly more unequal than Denmark. But to assess more subtle differences, it is necessary to rely on more than casual observation.

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