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Welfare Analysis with a Proxy Consumption Measure: Evidence from a Repeated Experiment in Indonesia

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  • Menno Pradhan

Abstract

Every three years, Indonesia fields simultaneously two nationwide surveys which collect consumption data. Onecollects consumption using 23 questions, the other using 320 questions. Based on a repeated experiment inwhich the two questionnaires were randomly assigned across households, I examine the consequences of using ahigher level of aggregation in questioning. A mapping of distribution functions reveals the combined effect ofsystematic differences in measurement and measurement error. Using a pseudo cross-section approach, Ieliminate the effect of measurement error and find that using a high level of aggregation yields a lowerconsumption measure, and that the fraction of underestimation increases as consumption rises. A one percentincrease in average consumption increases the fraction by which consumption is underestimated by about .4percent point. Next, I examine the consequences of using the short consumption questionnaire in welfareanalysis. Higher relative measurement error in the consumption measure derived from the short questionnaireresults in higher poverty estimates even if the poverty line is adjusted to take account of the systematicunderestimation. Small differences are found for analysis that is based on the rank the individual holds in theconsumption distribution. In gradient analysis, it seems impossible to devise a simple correction factor for thehigher consumption elasticities that follow when the short questionnaire is used.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 30 (2009)
Issue (Month): Special Issue on Measuring Consumption and Saving (December)
Pages: 391-417

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Handle: RePEc:ifs:fistud:v:30:y:2009:i:3-4:p:391-417

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References

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  1. Mark Montgomery & Michele Gragnolati & Kathleen Burke & Edmundo Paredes, 2000. "Measuring living standards with proxy variables," Demography, Springer, vol. 37(2), pages 155-174, May.
  2. Abuzar Asra, 1999. "Urban-Rural Differences in Costs of Living and Their Impact on Poverty Measures," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(3), pages 51-69.
  3. Joshua D. Angrist & Alan B. Krueger, 1990. "The Effect of Age at School Entry on Educational Attainment: An Application of Instrumental Variables with Moments from Two Samples," NBER Working Papers 3571, National Bureau of Economic Research, Inc.
  4. Angus Deaton & Salman Zaidi, 2002. "Guidelines for Constructing Consumption Aggregates for Welfare Analysis," World Bank Publications, The World Bank, number 14101, October.
  5. Chaudhuri, Shubham & Ravallion, Martin, 1994. "How well do static indicators identify the chronically poor?," Journal of Public Economics, Elsevier, vol. 53(3), pages 367-394, March.
  6. David E. Sahn & David Stifel, 2003. "Exploring Alternative Measures of Welfare in the Absence of Expenditure Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(4), pages 463-489, December.
  7. Lanjouw, Jean Olson & Lanjouw, Peter, 2001. "How to Compare Apples and Oranges: Poverty Measurement Based on Different Definitions of Consumption," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 47(1), pages 25-42, March.
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Cited by:
  1. Beegle, Kathleen & De Weerdt, Joachim & Friedman, Jed & Gibson, John, 2010. "Methods of household consumption measurement through surveys : experimental results from Tanzania," Policy Research Working Paper Series 5501, The World Bank.
  2. Martin Browning & Thomas F. Crossley & Guglielmo Weber, 2003. "Asking consumption questions in general purpose surveys," Economic Journal, Royal Economic Society, vol. 113(491), pages F540-F567, November.
  3. Thomas F. Crossley & Joachim K. Winter, 2013. "Asking Households About Expenditures: What Have We Learned?," NBER Working Papers 19543, National Bureau of Economic Research, Inc.
  4. David Stifel & Luc Christiaensen, 2007. "Tracking Poverty Over Time in the Absence of Comparable Consumption Data," World Bank Economic Review, World Bank Group, vol. 21(2), pages 317-341, June.
  5. Robert Cull & Kinnon Scott, 2010. "Measuring Household Usage of Financial Services: Does it Matter How or Whom You Ask?," World Bank Economic Review, World Bank Group, vol. 24(2), pages 199-233, April.
  6. Martin Browning & Thomas Crossley, 2009. "Are two cheap, noisy measures better than one expensive, accurate one?," IFS Working Papers W09/01, Institute for Fiscal Studies.
  7. Menno Pradhan & Fadia Saadah & Robert Sparrow, 2003. "Did the Healthcard Program ensure Access to Medical Care for the Poor during Indonesia's Economic Crisis?," Tinbergen Institute Discussion Papers 03-016/2, Tinbergen Institute.
  8. David E. Sahn & Stephen D. Younger, 2009. "Measuring intra‐household health inequality: explorations using the body mass index," Health Economics, John Wiley & Sons, Ltd., vol. 18(S1), pages S13-S36, April.
  9. Jurgen Faik & Uwe Fachinger, 2013. "The decomposition of well-being categories: An application to Germany," Working Papers 307, ECINEQ, Society for the Study of Economic Inequality.

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