Welfare analysis when people are different

Krishna Pendakur

Canadian Journal of Economics, 2018, vol. 51, issue 2, 321-360

Abstract: Inequality and poverty estimation (indeed, all welfare analysis) must deal with the fact that people are heterogeneous. Equivalence scales and indifference scales are tools that may be used for this. An equivalence scale gives the relative costs faced by different people; an indifference scale gives the relative cost of living for people in different types of households. Equivalence scales and indifference scales can be estimated using off-the-shelf household-level consumer expenditure data and standard econometric techniques for nonlinear equation systems. I offer a short introduction to the identification, estimation and use of equivalence scales and indifference scales and argue that these are complementary tools in the analysis of inequality and poverty. The methods are illustrated with Canadian household expenditure data from the Surveys of Household Spending 20042009. Estimated equivalence scales for disability are presented, along with estimated household model parameters and an analysis of consumption poverty.

JEL-codes: C14 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (10)

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