Misclassification Error, Binary Regression Bias, and Reliability in Multidimensional Poverty Measurement: An Estimation Approach Based on Bayesian Modelling

ABSTRACT Measurement error affects the quality of population orderings of an index and, hence, increases the misclassification of the poor and the non-poor groups and affects statistical inferences from binary regression models. Hence, the conclusions about the extent, profile, and distribution of poverty are likely to be misleading. However, the size and type (false positive/negatives) of classification error have remained untraceable in poverty research. This paper draws upon previous theoretical literature to develop a Bayesian-based estimator of population misclassification and binary-regression coefficient bias. The study uses the reliability values of existing poverty indices to set up a Monte Carlo study based on factor mixture models to illustrate the connections between measurement error, misclassification, and bias and evaluate the procedure and discusses its importance for real-world applications.