xI. What is development economics?Schaffner, Development Economics: Theory, Empirical Research and Policy Analysis, Chapter 1, Introduction Ananta Shah [email protected]. Measuring developmentSchaffner, Chapter 2, Well-Being Sonia Gutierrez [email protected] 2 ReviewTwo important steps in the development of well-being:• define well-being• identify the factors that raise and lower well-being for households in developing countriesPeople consider “being well-off” the ability to make choices and live with them even with the constraints they face.The focus of well-being is done by households (groups of people sharing residence and meals).Study of 42 Bangladesh:Although not poor by social standards, some of the households were still very poor by developed country standards. On a day to day basis, feeding a household is a high percentage of what the days’ income was.Many households also experience disruptions in income caused by sudden emergencies. Such can include: illness and injury, crop failures or job loss.• Networks of friends, relatives, and neighbors are important because they assist each other economically and provide interest-free loans (howlats).A person’s well-being is a summary assessment of how good or bad her life circumstances are, paying attention at a minimum to the quantities and qualities of the goods and services she consumes, the activities to which she allocates her time, and her hopes and fears regarding the future.Two questions:What is the relationship between well-being and happiness? Although some think that it is obvious to equate one with the other, some say that we cannot do that because some people with lower income have to adapt to their situation but are not necessarily happy. Also, some people who lack knowledge may not understand the consequences of their actions.Does well-being relate only to what people ultimately succeed in consuming, doing and experiencing, or also to the rights and freedoms that shape their ability to attain these things? -In developing countries, agriculture is much of what the labor force consists of.-As opposed to developed countries that are mainly composed of employees mainly run by others, developing countries consist more of family owned farms or businesses.-Even among waged employees, the typical job tends to be quite different in two types of countries. (Underdeveloped counties had jobs that were low-skilled, simpler productionactivities, less secure, and more likely to last only a short period of time).-First, agriculture is an important source of income for households in all income classes. Second, while agriculture is more important as a direct source of income in rural areas,it can serve as a source of income even in urban areas. Third, self-employment is very common in agriculture and non-agriculture, and in both rural and urban areas. Fourth, among agricultural income sources in rural areas, wage employment shows a sharp decline as income levels rise, indicating the low income and skill levels associated with much agricultural wage labor. Fifth, the higher prevalence of non-agricultural wage employment among higher income households suggests that non-agricultural wage employmentopportunities are more diverse than agricultural wage employment opportunities, with a larger fraction requiring greater skills and offering greater rewards.-Much of the household income in underdeveloped countriesgoes to buying food (25-60% of total income). Although money in important in acquiring these things, individuals alsohave to do things like walk long distances for water, or collect firewood.Fluctuations:-Seasonal Fluctuations: income only during season, generating little income at other times.-Shocks to agricultural productivity: fluctuations in many factors beyond farmer’s control, including temperature, rainfall, and other factors.-Variation in market prices: while increase in prices might help the farmer, it hurts the consumer.-Ex Post Responses to Fluctuations: responses made after being hit by a fluctuation-Ex Ante Response to Fluctuations: precautions made beforea predicted fluctuationInvestment:Different ways of investing include buying new assets such as land, working capital (buy things to sell), cultivating the same crop in more land and possibly innovating or adopting new technology, or they migrate.Determinants of Well-BeingThe determinants of household-level well-being are the features of households’ circumstances – such as how much land they own, how much education they have, what prices they must pay for food, what obligations they and their neighbors feel to share with each other – that they take as given in the present moment and that help to determine the level of well-being they achieve.-Assets include all things owned by given household-Needs also determine the well-being of a household, which can increase with number of family members, illness, injury, disability-Market condition, such as goods markets and labor marketsEmpirical study of well-beingBest way to measure well-being is by drawing inferences about what is happening to well-being on the basis of living standards-Income: most frequent way of measuring household level ofliving, includes all sources from all forms.-Real per capita consumption expenditure: the total value of goods and services consumed by the household divided by the number of household members, and adjusted for differences in prices. Consumption expenditure is thought to have two primary advantages over income as a summaryindicator of living standards.• First, though both concepts are difficult to measure, methods for measuring consumption expenditure inspire more confidence than income measurement methods.• Second, if households are able to smooth consumption across months by saving (rather than consuming) some income in high-income seasons and drawing down savings (propping upconsumption) in low-income seasons, then measures of consumption expenditure in any one month are likely to provide more accurate descriptions of households’ typical living standards than measures of income in the same short period.Direct assessment , especially when focused on features of life circumstances for which income and consumption expenditure are not expected to be good gauges, is perhaps more useful as a supplement to (rather than a substitute for) income and consumption expenditure measures. It may be used to check, for example, what is happening to the