Romanian Journal of Economic Forecasting – 1/2010 137 STRATEGIC AND GENERAL EQUILIBRIUM MODELS IN POVERTY MEASUREMENT STUDIES Keshab BHATTARAI * Abstract Incentive compatibility in poverty alleviation game for the most efficient and just allocation of resources and maximisation of social welfare requires cooperation from both rich and poor households, governments and the global community. Non- cooperation among them only deepens poverty with socially, economically and morally unacceptable magnitudes of malnutrition, hunger-disease-illness, tensions and conflicts, illiteracy and lack of education and skills. Scientific analyses and systematic implementation of poverty reduction initiatives require strategic and multi- household general equilibrium models to compliment standard Booth-Rowntree, Sen- Atkinson and FGT or Jenkins-Lambert type absolute, relative, chronic or intensity measures of poverty in order to evaluate dynamic impacts actions taken for alleviation of poverty. Bad game results in poverty and good game results in prosperity. No analyses of poverty can be considered complete without evaluating income and substitution effects on welfare of these households based on the price mechanism and allocation of resources in the wider economy. Keywords: poverty, redistribution, dynamic model JEL Classification: D63, O15 1. Introduction 1 Poverty is measured relatively and absolutely. Adam Smith (1776) was absolutist, for him it meant being ashamed to appear in public due to inability to afford necessary things according to the custom and standards of the country: “... A linen shirt is strictly speaking not a necessity of life. The Greeks and Romans lived very comfortably * Business School, University of Hull, Cottingham Road, HU6 7RX, email: K.R.Bhattarai@hull.ac.uk , Phone 44-1482-463207, Fax: 44-1482-463484 1 Earlier version of this paper was presented in the International Conference in Policy Modelling in the University of Sao Paulo, Brazil, July 11-13, 2007. Author thanks conference participants for their comments and suggestions, however, bears responsibility for all errors and omissions. 11.