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A Dual-Regime Utility Model for Poverty Analysis

Claudia Biancotti ()

No 603, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper offers a micro-founded general definition of poverty set in the context of utility theory. Poverty and non-poverty are described as two structurally different types of local non-satiation: the former entails a strong need for further consumption and social marginalization, the latter is characterized by a weak need for further consumption and satisfactory adjustment to social expectations. Each of the states can be fully described by a separate technology of utility production. The model is tested on data from the Bank of Italy�s Survey of Household Income and Wealth; an indicator of self-reported economic satisfaction is regressed on yearly consumption of food and non-food commodities. The predictions of the model are confirmed in the case of food consumption, signalling the existence of physiological minima that are uniformly perceived by individuals. For non-food commodities, no significant change of regimes is found: welfare appears to be connected with needs that are less exposed to structural variation, possibly because they are not as urgent or objective as food-related ones.

Keywords: Poverty (search for similar items in EconPapers)
JEL-codes: I31 I32 D11 (search for similar items in EconPapers)
Date: 2006-09
New Economics Papers: this item is included in nep-upt
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