# **1 Introduction**

Average income per capita and the poverty headcount are among the most common measures used to summarize living standards and to assess progress towards national and international development goals. The popularity of these welfare measures is in no small measure due to their simplicity, which makes them easy to understand and to communicate to wide audiences. However, these measures also have a fundamental limitation: they are silent on the extent of inequality among all individuals (in the case of average income) and inequality among the poor (in the case of the headcount).

This limitation does not sit well with the widely held view that inequality matters: specifically, that welfare measures should be more responsive to changes in income that take place at the bottom of the distribution. This view has at least four justifications. First, with decreasing marginal utility of income, the social preferences of a utilitarian policymaker give more weight to those at the bottom of the distribution.<sup>1</sup> Second, most major philosophical traditions and religions express a special concern for the worse-off (World Bank, 2005). Third, the fact that several of the Sustainable Development Goals have distributional elements reveals a preference among international policymakers for lower inequality.<sup>2</sup> Fourth, direct empirical estimates suggest a high degree of inequality aversion, although the variance of estimates is large (Clark and D’Ambrosio 2015, Kot and Paradowski, 2022).

This limitation is well-understood, and a long literature has generated an impressive variety of distribution sensitive welfare measures to address it.<sup>3</sup> However, these measures are rarely used in practice. To illustrate this, Table 1.1 displays the results of a simple keyword search for leading poverty and welfare measures, in three bodies of documents: academic research papers in EconLit; policy documents of major multilateral development banks as curated at nlp4dev.org; and general writing in the Google N-gram Viewer. Across all three categories of documents, the frequency of references to poverty headcount is two to three orders of magnitude larger than the frequency of references to the most common distribution sensitive poverty measures, i.e., the squared poverty gap and the Watts index. The pattern is similar for welfare indices in the bottom panel: references to average income are two orders of magnitude more common than references to the best-known distribution sensitive welfare measures like the Atkinson and Sen indexes.

> 1 This is related to prioritarianism, an ethical theory that gives extra weight to the well-being of the worse-off (Adler and Norheim, 2022).

> 2 Such preferences are not just revealed but explicitly stated in international efforts to move beyond per capita GDP as a welfare measure. For example, the Stiglitz-Sen-Fitoussi Commission on the Measurement of Economic Performance and Social Progress criticized measures of per-capita income and wealth because they give no indication of how the available resources are distributed across people (Stiglitz, Sen and Fitoussi 2009).

> 3 For example, early critiques of the headcount index for its lack of distribution sensitivity go back to Watts (1969) and Sen (1976). Distribution sensitive poverty and welfare measures have been introduced by numerous scholars, including Watts (1969), Atkinson (1970), Sen (1976), Thon (1979), Takayama (1979), Kakwani (1980), Clark, Hemming, and Ulph (1981), Donaldson and Weymark (1980), Chakravarty (1983), Foster, Greer, and Thorbecke (1984), Hagenaars (1987), Chakravarty (2009).

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