Open Research Online
The Open University’s repository of research publications
and other research outputs
The development of capability indicators
Journal Item
How to cite:
Anand, Paul; Hunter, Graham; Carter, Ian; Dowding, Keith; Guala, Francesco and van Hees, Martin (2009).
The development of capability indicators. Journal of Human Development and Capabilities, 10(1) pp. 125–152.
For guidance on citations see FAQs.
c
2009 Taylor Francis
Version: Accepted Manuscript
Link(s) to article on publisher’s website:
http://dx.doi.org/doi:10.1080/14649880802675366
Copyright and Moral Rights for the articles on this site are retained by the individual authors and/or other copyright
owners. For more information on Open Research Online’s data policy on reuse of materials please consult the policies
page.
oro.open.ac.uk
Journal of Human Development forthcoming
The Development of Capability Indicators
Paul Anand, The Open University
1
Graham Hunter, The Open University
Ian Carter, Pavia University
Keith Dowding, London School of Economics
Francesco Guala, Exeter University
Martin van Hees, Groningen University
Maria Sigala, Oxford University
1
Corresponding author: The Department of Economics, The Open University, MK7 6AA, UK
- -
1
The Development of Capability Indicators
Abstract
The paper is motivated by sustained interest in the capabilities approach to welfare economics combined with
the paucity of economic statistics that measure capabilities at the individual level. Specifically, it takes a much
discussed account of the normatively desirable capabilities constitutive of a good life, argued to be
comprehensive at a high level of abstraction, and uses it to operationalize the capabilities approach by
developing a survey instrument which is then used to elicit information about capabilities at the individual
level. The paper explores the extent to which these capabilities are covariates of life satisfaction measure
(utility) and investigates aspects of robustness and sub-group differences using standard socio-demographic
variables as well as a relatively novel control for personality. In substantial terms, we find that there is some
evidence of quantitative, but no qualitative, gender and age differences in the capabilities-life satisfaction
relationship. Furthermore, we find that indicators from a wide range of life domains are linked to life
satisfaction, a finding that supports the multi-dimensional approaches to poverty and quality of life and the
view that people do not just value income (opulence in Sen’s language) per se. Our most important
contribution, however, is primarily methodological and derives from the demonstration that within the
conventions of household and social surveys, human capabilities can be measured with the aid of suitably
designed statistical indicators.
JEL Codes: D60, C80
Keywords: capabilities; measurement; multi-dimensional welfare indicators; human development; welfare;
happiness; life satisfaction; personality controls; gender differences’ age differences;
- -
2
The Development of Capability Indicators
I. Introduction
How economists conceptualise and measure human welfare is central to both economic theorising and policy-making. At
an axiomatic level, many theorists now accept that generalisations of expected utility are required to model choice
behaviour and, together with a growing number of philosophers and psychologists, many accept these generalisations as
normative.
2
Moreover these developments have been accompanied by parallel and related changes in the fields of social
choice and welfare economics, developments profoundly influenced by the concerns of Sen and others about the
inappropriate informational basis of traditional welfare economics, concerns that have led to the capabilities approach to
human economic welfare. In a nutshell, the approach emphasises that the things a person could do or be, as opposed to
what they actually do, is an integral part of a person’s welfare. This opportunity aspect of welfare assessment is already
reflected in equality and diversity theories and policies but the capabilities approach encourages us to examine more
extensively the implications of freedom and equity.
This approach
3
has already been highly influential in development having helped to shape the way in which economic
progress is conceived of, and measured by, policy-makers at the international level (eg United Nations 2004) and there is
now beginning to emerge a literature that applies capabilities analysis to issues that are also of concern in high income
countries.
4
However a number of researchers have commented on the lack of data that measure people’s capabilities per
se even though such data seem vital to both policy-makers and academics if the approach is to have the empirical and
policy purchase theory and foundations promise and it is this empirical gap which the paper seeks, mainly, to address.
A second theme in the paper relates to the appreciation amongst economists conducting applied welfare research of the
value of subjective well-being data. In his writings on human flourishing, Sen (1985) suggests that evidence on what
makes people happy can provide evidence about their true underlying values. And although the use of self-report data on
happiness originated in the field of psychology, there are many mainstream economics articles now which use it as a
dependent variable, generally as an indicator of ‘experienced’ utility (Kahneman et al, 1997). This represents something
of a methodological departure from the traditional practice in economics of focusing on market measures of utility but
there are many situations where market measures are either infeasible or do not give good proxies of relevant values.
Typically, economists using SWB data have tended to work within the utilitarian tradition of conventional welfare
2
See, for instance, surveys by Anand (1987) and Machina (1989).
3
We use the term ‘approach’ following the literature: This emphasises the fact that the main contribution of theoretical work has been
in the formation of concepts and understanding their relations. In economics (and philosophy of science to a lesser extent), the term
theory is often used to refer to a narrower, mathematical formulation of concepts and for the capabilities approach one such theory can
be found in Sen (1985).
4
Empirical applications can be found in Schokkaert and van Ootegem (1990), Qizilbash (1996), Chiappero-Martinetti (2000), Layte
et al (2000), Laderchi (2001), Alkire (2002), Burchardt and Le Grand (2002), Burchardt and Zaidi (2003), Clark (2003), Qizilbash
(2004), Alkire (2005), Kuklys (2005), Anand Hunter and Smith (forthcoming)). The theoretical literature on freedom is perhaps not as
closely related to empirical work on capabilities as it might be though more recent papers suggest modest evidence of conceptual
convergence – see for example Gaertner and Xu (2005), van Hees (2004), Nehring and Puppe (2002) and Pattanaik and Xu (1998).
(The observation is a comment on the recent economic history of development thought and does not imply that high-income countries
are more utilitarian, by necessity, than low income countries.)
- -
3
economics but the link need not be exclusive or essential - as we shall see Sen’s account of welfare and capabilities has an
explicit role for happiness. Here, we shall use subjective well-being (life satisfaction) data to ask which, if any, of the
capabilities measured, are its covariates. Strictly speaking, the capabilities approach could be defended against apparent
counter-evidence on the grounds that normative claims cannot be shown to be true or false. But equally, it would be a
strange theory of human well-being that could not be supported by any empirical evidence. (That said, there are particular
reasons, as we shall see, why the theory might be valid, and yet not be supportable by the available evidence.) In any case,
there is a growing recognition, especially amongst behavioural economists, that this work should have implications for
the measurement of well-being at national and international level (eg Kahneman et al, 2004) and yet it is clear that such
applications can only develop if researchers construct appropriate raw data of the sort this paper seeks to generate.
The rest of the paper is structured as follows. Section II provides an introduction to aspects of the capability approach,
particularly the concept of capability itself, which emphasises what people are free or able to do, its relation to happiness
and a philosophical account of capabilities essential for a good life. Section III describes the methods employed,
particularly the questions devised, their relation to Nussbaum’s account, and the methods used to implement them. The
results of the analysis, in which capabilities are used to explain variations in life satisfaction, are presented in section V
which also includes analysis of robustness and discussion of results. Summary and concluding remarks appear in section
V.
II. The Capabilities Approach to Welfare
Capabilities theory, more often and perhaps properly referred to as an approach, emerged from concerns about the
informational basis of traditional welfare economics. In particular, the approach developed from Sen’s analysis of
axiomatic social choice theory, Sen (1970), (1976) and (1979), from which he concludes that there are good normative
reasons for wanting to modify conventional welfare economics. These concerns centre around the informational basis on
which social choice and welfare theory operate: in the first instance, there are claims other than utility, like rights and
freedoms, which society often wants to acknowledge but which enter neither explicitly, nor directly, into the utilitarian
approach to social choice.
5
On the other hand, there may be some preferences, like the desire to discriminate on grounds
of skin colour, which we want to exclude from many decision-making processes. So the informational basis of welfare
economics is too ‘fat’ in some ways (includes too may preferences) and too ‘thin’ in others (ignores non utility based
claims on social choice). And as has been shown elsewhere, though the basis of these theoretical concerns is normative,
they are supported by evidence concerning how people do, in fact, want social choices to be made – ie they do not wish to
maximise social welfare for a variety of reasons not least of which is the fact they are concerned about distributional
issues too.
6
5
Rights and freedoms enter into utilitarian calculations to the extent that people value them. However, this contingent approach to
valuing so-called de-ontological claims is one of the aspects that causes many to object to utilitarian approaches to welfare.
6
See for instance Anand and Wailoo (2000).
- -
4
