Chapter 20 On the Welfarist Rationale for Relative Poverty Lines

Abstract This chapter reviews the theory and evidence supporting a relativist approach to poverty measurement. It identifies various sources of welfare interdependence, including the idea of ‘relative deprivation’ as well as other (positive and negative) welfare effects for poor people of belonging to a better-off group. An economic model combines informal risk-sharing with the idea of a ‘positional good’, and conditions are derived in which the relative deprivation effect dominates, implying a relative poverty measure. The chapter then reviews the problems encountered in testing for relative deprivation effects and presents some micro evidence from Malawi. While the results are consistent with the emphasis given to absolute level of living in development policy discussions, relative deprivation is evident in this poor but unequal country, and it is likely to become more important as the country develops.