A unified approach for measuring welfare protection under a decentralized framework

Working Paper 2016-405

Abstract

The existing literature on welfare decentralization has not produced a robust set of measures and properties, and no consensus has emerged on how differences in the protection provided by territorial programs should be aggregated into a composite index. The measurement of the level of protection provided by decentralized minimum income programs has often focused on one of two dimensions: adequacy or coverage. The rankings of regions in terms of the protection provided can be very different depending on the chosen outcome. In this paper, we introduce several properties that should be taken into account when measuring these differences. Based on social welfare functions, we propose a parameterized family of indices that satisfy those properties and combine both dimensions. Our empirical illustration using Spanish data confirms that focusing only on standard measures of adequacy may introduce an important bias, making it difficult to properly identify real differences in terms of social welfare among programs in different jurisdictions.

Authors: Luis Ayala, Elena Bárcena-Martín.