Social Indicators Research

, Volume 129, Issue 2, pp 717–737

Estimating Capabilities with Structural Equation Models: How Well are We Doing in a ‘Real’ World?


DOI: 10.1007/s11205-015-1148-6

Cite this article as:
Krishnakumar, J. & Chávez-Juárez, F. Soc Indic Res (2016) 129: 717. doi:10.1007/s11205-015-1148-6


Measuring capabilities is a major challenge for the operationalization of the capability approach. Structural equation models (SEM) are being increasingly used as one possible methodology for estimating capabilities, but a certain skepticism remains about their appropriateness. In this paper, we perform a unique simulation experiment for testing the validity of such estimators. Using an agent-based modeling tool, we simulate a ‘real’ life scenario with individuals of heterogeneous characteristics and behaviors, having different capability sets, and making different decisions. We then run a SEM (MIMIC) model on the data generated in this simulated world to estimate the individual capabilities. Thus our data generating process is completely disconnected with the econometric model used for estimation. Our results support the idea that SEM can coherently estimate the true capabilities. We find that the linear predictor from the structural part of the SEM provides better results than the ‘classical’ factor scores based on the full model.


Latent variables MIMIC SEM Simulation  Capability approach 

JEL Classification

C10 C15 D63 I00 I20 

Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  1. 1.Institute of Economics and Econometrics, Geneva School of Economics and Management (GSEM)University of GenevaGenevaSwitzerland
  2. 2.División de EconomíaCentro de Investigación y Docencia Económicas (CIDE)Mexico CityMexico

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