Written Paper

On the Utility Consistency of Poverty Lines  [2003]

Ravallion, Martin Lokshin, Michael

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Although poverty lines are widely used as deflators for inter-group welfare comparisons, their internal consistency is rarely given close scrutiny. A priori considerations suggest that commonly used methods cannot be relied on to yield poverty lines that are consistent in terms of utility, or for capabilities more generally. The theory of revealed preference offers testable implications of utility consistency for "poverty baskets" under homogeneous preferences. A case study of Russia's official poverty lines reveals numerous violations of revealed preference criteria-violations that are not solely attributable to heterogeneity in preferences associated with climatic differences.