Disability and Job Constraint in Post Civil War Cambodia

Using an augmented random utility model, we incorporate capability-associated constraints on the set of job choices to identify and estimate the reduced number of jobs due to disabilities – to show that capability disadvantages can be converted to a form of income through the compensation variation denoted as capability-equivalent income. We deliberately chose Cambodia for the empirical analysis, because the civil war and genocide that occurred in the 1970s in the country can be considered a ‘natural shock’. Based on the utility function and the estimated parameters, we simulate the amount of capability-equivalent income of individuals after being compensated for their capability disadvantage by taxing the top earners. We show that after the transfer, the inequality in terms of both income and welfare decreases, and the overall welfare increases.