National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Assessment of Valuation Approaches

« Previous: Census Bureau Valuation Procedures
Suggested Citation:"Assessment of Valuation Approaches." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 222

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DEFINING RESOURCES 222 percentage points (to 12.8%), while the poverty budget shares approach reduced the rate by 1.4 percentage points (to 12.6%). These results reflect the more conservative assignment of values to in-kind benefits of the recipient value approach and, to a lesser extent, the poverty budget shares method, compared with the market value approach. Assessment of Valuation Approaches The Census Bureau adopted the current market value approach for valuing in-kind benefits and dropped the other two approaches on the basis of recommendations at its 1985 Conference on the Measurement of Noncash Benefits.18 At this conference, Chiswick (1985) noted that the validity of the market value approach depends on two assumptions: (1) that a household would pay the same market price (on average) as that used in estimating the market value, and (2) that the household would, in the absence of the noncash transfer, have consumed at least that much of the good or service in question. With the exception of food stamps (which are virtually the same as cash), Chiswick argued that the recipient value approach is conceptually superior to the market value approach. The reason is precisely that the assumptions underlying the latter may not hold and, hence, the value that the recipient places on a good or service may be far below the market value. Some participants at the conference argued against the view that the recipient value approach is the superior concept (see, e.g., Browning, 1985). Also, all of the participants agreed that there is as yet no reliable way of estimating recipient value. Indeed, Chiswick made the point that the Census Bureau's recipient value estimation procedure was instead a "matched estimate" technique, which stratified families, on the basis of their survey responses, into cells defined by income and demographic characteristics and by whether they were subsidized or not. Under this procedure, the cash equivalent value of the subsidy was taken to be the difference between the expenditures on the good or service by unsubsidized and subsidized families within each group. A flaw in this approach was that it ignored the selection bias for participation in assistance programs. No one at the conference supported the poverty budget shares method, which Chiswick (1985) described as a "bounded market value" approach. The upper limit on the market value assigned to a family for an in-kind benefit was usually the amount spent on the good or service by nonparticipants who were near the poverty level, under the assumption that values in excess of that amount could not always substitute for other needs. Flaws in this approach, as Chiswick noted, were that it treated any benefits above the threshold level as 18 An exception was medical care benefits, for which the Census Bureau adopted a "fungible value" approach; see next section.

Next: Medical Care Needs and Resources »
Measuring Poverty: A New Approach Get This Book
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Each year's poverty figures are anxiously awaited by policymakers, analysts, and the media. Yet questions are increasing about the 30-year-old measure as social and economic conditions change.

In Measuring Poverty a distinguished panel provides policymakers with an up-to-date evaluation of:

  • Concepts and procedures for deriving the poverty threshold, including adjustments for different family circumstances.
  • Definitions of family resources.
  • Procedures for annual updates of poverty measures.

The volume explores specific issues underlying the poverty measure, analyzes the likely effects of any changes on poverty rates, and discusses the impact on eligibility for public benefits. In supporting its recommendations the panel provides insightful recognition of the political and social dimensions of this key economic indicator.

Measuring Poverty will be important to government officials, policy analysts, statisticians, economists, researchers, and others involved in virtually all poverty and social welfare issues.

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