Making Amartya Sen’s Capability Approach Operational: A Random Scale Framework for Empirical Modeling

Amartya Sen has developed the so-called capability approach to take account of the view that income on its own is not enough to measure economic inequality. This is because knowledge about people’s income does not tell us what they are able to acquire with that income. For example, people with the same income may not have access to health and transportation services, schools and opportunities in the labor market. Recently, there has been growing interest in empirical studies based on the capability approach. Most of these, however, are only loosely related to quantitative behavioral microeconomic theory, at least in a concrete and empirically operational way. The purpose of this paper is to demonstrate that the theory of random scale (utility) models (RSM) offers a suitable and powerful framework for representing and accounting for some key aspects of Sen’s theory. In this paper we reinterpret the concepts Sen has proposed within the RSM framework, with particular reference to representations that are operational in empirical contexts.