What are the four properties every poverty measures must satisfy?

1. Focus principle.

2. Monotonicity.

3. Transfer.

4. Decomposability

FOCUS PRINCIPLE

This principle states that a poverty measure should capture its target population, a poverty

measure should be independent of the income of those that are not poor. Under this principle, we

can have two types of focus- population focus and income focus principle the income focus

principle states ceteris paribus, an increase in the income of the non- poor ought not to affect the

measured poverty index, and the population focus states that ceteris paribus the increase in the

population of the non poor ought not affect the measured poverty. The population focus has

received little attention in most measures.

MONOTONICITY

Simply put, the principle states that a decrease (increase) in the income of a poor person should

increase (decrease) the overall poverty level. There are two types of monotonicity- the Weak and

Strong monotonicity. The weak monotonicity simply means a decrease in the income of the poor,

and a strong monotonicity is an increase in the income of the poor. Strong monotonicity implies

weak monotonicity, but not vice-versa. If a small amount increase in the income of a poor person

lifts him out of poverty, then the weak and strong monotonicity are not equivalent. As a matter of

fact, the strong Monotonicity is weak monotonicity plus continuity.

TRANSFER

This property is very important; it states that a progressive transfer from a rich person to a poor

person should decrease the poverty measure, vice-versa. We can different forms of transfer:
 Minimal Transfer: it is a regressive transfer of income between two poor persons, with no one

crossing the poverty line.

Weak Transfer: it is a regressive transfer between two individuals where the donor party is the

poor person, and no one crosses the poverty line as a consequence of the transfer.

A regressive transfer is a transfer where the donor is a poor person. And a progressive transfer

is a transfer where the donor is a rich individual.

DECOMPOSABILITY

The property of decomposability is satisfied when a poverty measure of a group is a weighted

average of the individual members of the group. In this case, ceteris paribus reduction in the

poverty measure of the subgroup will reduce the poverty measure of the entire population.

Usually, this property is very important, when we have a population that is divided into

subgroups along geographical, ethnic or other lines. If this property is satisfied, then we can use

the measure to obtain the contribution of each subgroup to the population poverty and the effect

of changes in the subgroup on the entire population.

What are the four properties every inequality measures must satisfy?

1. Anonymity Principle.

2. Population Principle.

3. Relative income Principle.

4. Dalton Principle.

ANONIMITY

This principle is also called the symmetry principle. The principle/property states that a poverty

measure should not take into account who “earns what”. That is, a poverty measure should not

take into account the various individuals who earn income. If this principle is satisfied, then the

permutation of income among individuals should not matter. If the president trades off his income
 for that of a trader, the income inequality remains unchanged. Anonymity does not deal with

fairness; it only states how income is distributed.

y1≤ y2≤......≤ yn

POPULATION PRINCIPLE

This principle states that the total number of people living in a country does not matter. That is, a

poverty measure does not draw conclusion merely by observing the total number of people living

within a country, it is rather concerned with the proportion of people that earns certain range of

income.

From the table below, let’s assume that two countries A and B with population of 100 and 1000

respectively depict the income inequality below. Then it follows that an inequality measure must

classify both countries as having the same inequality distribution, irrespective of their individual

population.

Range of income % of population

0-50 30

51-100 35

101-200 20

201-300 10

301 and above 5

The principle can also be written as: I(y1, y2............. yn) = I(y1, y2,..., yn; y1, y2,........., yn)

RELATIVE INCOME PRINCIPLE

This property states that a measure of inequality should be independent of the aggregate income in the

economy. This principle states that only relative income and not absolute income should be considered. In

other words, we should not immediately judge developed economies to be more characterized by higher

inequality, the principle states that the multiplication of every individual’s income by a positive constant

with not change the level of inequality. That is, if the income of all the citizens in Nigeria is squared, the
inequality gap will still be the same. If this principle is satisfied, it means that; if we have two individuals

A and B with relative income 200 and 1000 respectively. By multiplying their income with a positive

constant (100), the income becomes 20000 and 100000; but the inequality gap remains the same. With

this principle, we do not need aggregate income information; we can represent income in quintile and

deciles. This principle is written as I(y1, y2............. yn) = I(αy1, αy2,...., αyn); where α >0.

DALTON PRINCIPLE

This principle can also be called the “Pigou-Dalton Transfer Principle” this principle is one of the very

important property of any inequality measure.

The Dalton principle states that if one distribution of income can be generated from another via a

sequence of regressive transfer, then it follows that the original distribution must be more equal than the

other.

Assuming that the income distribution is (y1, y2, y3........... yn) and consider two income yi and yj;

If yi ≤ yj, then we have to types of inequality:

1. The strict inequality (yi < yj.): this is interpreted as the transfer of income from the poorest

individuals to the richest individuals.

2. The weak inequality (yi ≤ yj.): this is interpreted as the transfer of income from the “not too rich”

to the “not too poor”

Either case; the transfer of income from j to i is a regressive transfer.

Formally, if for every positive transfer (δ>0) and for every income distribution (y1, y2,..........yn), then the

Dalton principle is satisfied it I(y1,..., yi,....., yj,......,yn) < I(y1,..., yi- δ..., yj+ δ,......,yn).
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