Being poor, feeling poorer: Combining objective and subjective measures of welfare in Albania

In this paper we investigate how combining objective and subjective measures of welfare can enrich traditional poverty profiles by exploring the relationship between these welfare measures, and examining what explains the differences between the two. One important finding of our analysis (using data for Albania) is that reconciling subjective and objective poverty profiles suggests the presence of sizable economies of scale. This result calls for increased attention to the proper estimation of a scale parameter for poverty analysis, as changes in assumptions on economies of size and adult equivalence scales are likely to produce significant changes in the analysis of poverty and its distribution across households and individuals.