Freedom, Markets, and Well-being Fall 2021

The Capabilities Approach


The capabilities approach represents an alternative to the standard treatment of well-being in economics. The idea is that things like GDP are an inappropriate way to measure a country’s development. It is better, according to the advocates of the capabilities approach, to look at what people who live in a country are capable of doing. If their capabilities are expanding, then the country is doing better even if its GDP is not growing and if their capabilities are stagnating or declining then the country is doing worse even if its GDP is growing. That’s was the idea that kicked this thing off.

Nussbaum is less interested in development than she is in moral comparisons. Is country A morally better than it was ten years ago? Is B morally better than C? What should we do to make D better in the future? Is E a just society? If not, what would it take to make it one? Those are the kinds of questions she is interested in.

What is a capability? Capabilities “are answers to the question, ‘What is this person able to do and to be?’ In other words, they are … a set of (usually interrelated) opportunities to choose and to act. … Capability is thus a kind of freedom: the substantive freedom to achieve alternative functioning combinations” (Nussbaum 2011, 20); “capability means opportunity to select” so “freedom to choose is … built into the notion of capability” (Nussbaum 2011, 25).

Contrast with Utility Theory

This is something we have done in the past, when Prof. Brown had access to a blackboard and could demonstrate how economists construct indifference curves. We didn’t talk about this in this year’s class, but I have the notes, so here you go.

There are four limits to utility theory.

First, utility theory does not allow us to compare well-being of different people. Utility functions are subjective: we could each have a different one. They also do not allow us to compare one person’s well-being against another’s. You may be on a very high indifference curve while I am on a very low one but that does not necessarily mean that you are better off than I am. All we can say is that you are better off than you would have been if you were on one of your lower indifference curves and that I am worse off than I would have been if I were on one of my higher indifference curves.

Second, utility theory does not distinguish wants from needs. Ordinarily, we distinguish between things that people need, like food and shelter, and things that people merely want, like consumer electronics and expensive coffee. This distinction is obviously important for many normative purposes, but it plays no role in utility theory.

Third, utility theory is insensitive to the genesis of people’s wants. Utility theory says you’re better off if you get what you want even if your desires are the product of manipulation or false beliefs. This raises the problem of what are called adaptive preferences. What that means is that people tend to adapt to their circumstances or what they believe is possible. So if you grow up thinking that girls just don’t go to school, you won’t want to go to school. Utility theory counts this as something that girls want without taking into account the reason why they want it. Since that reason is, on its face, defective, that’s a limit of utility theory.

Fourth, utility theory has often been applied to households rather than individuals. (It seems to me that this is not a fault of utility theory but rather of the ham-handed way it is applied. For instance, if you can’t combine different individual’s utilities, I don’t see how you could talk about the utility of a household. - mjg)

Why is utility theory like this? My guess is that while it was developed to predict behavior it is often used for normative purposes. For instance, we assume that it is better to move a person to a higher indifference curve, other things being equal. But the theory was not developed with normative purposes in mind. If it had been, the barrier against interpersonal comparisons of utility would have been disqualifying.

The capabilities approach, by contrast, is objective, allows for interpersonal comparisons, and was developed for normative purposes. The theory has two elements: capabilities and functionings. Functionings are “beings and doings,” that is, things that people do, such as “eating regularly,” or qualities that they have, such as “being well-fed.” Capabilities are what economists call “opportunity sets.” Your capabilities are measured by the functionings that are available to you; they are the set of functionings that you have the opportunity of achieving, if you will.


Nussbaum, Martha C. 2011. Creating Capabilities: The Human Development Approach. Cambridge: Harvard University Press.