Adaptive preference formation : a case study of Armenia and Azerbaijan examining the effects of income, gender and isolation

Maniatis, Sara (2009). Adaptive preference formation : a case study of Armenia and Azerbaijan examining the effects of income, gender and isolation Honours Thesis, School of Economics, The University of Queensland.

       
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Author Maniatis, Sara
Thesis Title Adaptive preference formation : a case study of Armenia and Azerbaijan examining the effects of income, gender and isolation
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2009
Thesis type Honours Thesis
Total pages 116
Language eng
Subjects 1402 Applied Economics
Formatted abstract The 'adaptive preference formation' (APF) hypothesis refers to the idea that people's preferences, desires, aspirations and requirements may adjust and adapt to the social and economic circumstances by which they are surrounded. Such adaptation can manifest itself in two distinct ways. APF can mean the trending upwards of aspirations and desires when more becomes attainable, and this is referred to as 'upward' or 'positive' APF. Adaptation of preferences can also relate to a downgrading, contenting and placating of an individual's requirements when they are either made worse-off in the long-term, or they are simply unacquainted with higher or more ambitious alternatives. This is known as 'downward' or 'negative' APF. Due to the important implications for poverty analysis, the existence of the negative manifestation of APF is the explicit focus of this study. In particular, the notion that poor people adapt to poverty and deprivation by suppressing their wants, hopes and desires has gained considerable currency in development ethics, and has yet to be explicitly empirically tested in a developing context. APFs are important insofar as their existence may skew subjective well-being (SWB) measures of poverty. This includes self-reported survey questionnaire responses, which are widely used within the field of economics. Thus this thesis formally tests for the existence of negative APFs with respect to three variables of interest: income; gender and isolation. Cross-sectional data are employed, collected at the household level in Armenia and Azerbaijan by the Asian Development Bank. In lieu of typically broader measures of SWB, self assessed required income of the household is the focus of this thesis. Descriptive statistics are generated followed by multivariate analysis; introducing controls for differences in income need (household composition, location, education, dependency ratio, stable income earners). Three econometric models are employed: a baseline OLS regression model, an ordered probit model and Tobit model. This thesis also uses two variants of the dependent variable; requirements in income and the perceived required income gap, whereby the dependent required income gap variable is specified relative to income. The OLS model provides strong evidence of negative APF with regards to the three variables of interest robust across both countries. Various support for the existence of downward APF showing through subjective measures is found in the remaining two models. To ensure results are not biased, the issue of potential endogeneity within the econometric modelling of this thesis is considered carefully and addressed through the use of Instrumental Variables (IV) and extensive statistical testing.

 
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