User:Maryakamoti

measures of poverty

let y denote income (or expenditure) and subscripts i, j,..., refer to individuals. lets denote by p the poverty line and by m the mean income of the economy. Head Count if we simply count the number of people below the poverty line, we get the head count (HC). Head Count Ratio suppose we are interested in the relative incidence of the poor rather than the numbers per se. in that case we divide the HC by the total population of the country or region under consideration. this gives us the head count ratio (HCR), which is just the head count as a fraction of the population. an obvious problem with the HCR is that it fails to capture the extent to which individual income (or expenditure) falls below the poverty line. people further below the poverty line are "poorer" than people closer to it, and the HC and HCR are insensitive to this observation. however a worse problem is that the use of HCR as a poverty measure systematically biases policy in favour of individuals who are very close to the poverty line. statistically these people are the biggest bang for the buck, because they are most easily taken above the poverty line. yet, of all the poor, they are relatively in the least need of help. Poverty Gap Ratio one way to partially offset this bias, and more fundamentally take account of the extent of poverty, is to use a measure of the average income shortfall from the poverty line. this is the poverty gap ratio, defined as the ratio of the average of income (or extra consumption) needed to get all poor people to the poverty line, divided by the mean income (or consumption) of the society.