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

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  • Menno Pradhan

    ()
    (World Bank, Washington, and Vrije Universiteit Amsterdam)

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

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 01-092/2.

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Date of creation: 04 Oct 2001
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Handle: RePEc:dgr:uvatin:20010092

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Web page: http://www.tinbergen.nl

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Keywords: Measurement error; welfare analysis; consumption;

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  1. Deaton, A. & Zaidi, S., 1999. "Guidelines for Constructing Consumption Aggregates for Welfare Analysis," Papers 192, Princeton, Woodrow Wilson School - Development Studies.
  2. Mark Montgomery & Michele Gragnolati & Kathleen Burke & Edmundo Paredes, 2000. "Measuring living standards with proxy variables," Demography, Springer, vol. 37(2), pages 155-174, May.
  3. 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.
  4. Joshua Angrist & Alan Krueger, 1990. "The Effect of Age at School Entry on Educational Attainment: An Application of Instrumental Variables with Moments from Two Samples," Working Papers 654, Princeton University, Department of Economics, Industrial Relations Section..
  5. 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.
  6. 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.
  7. 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.
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Cited by:
  1. Stifel, David & Christiaensen, Luc, 2006. "Tracking poverty over time in the absence of comparable consumption data," Policy Research Working Paper Series 3810, The World Bank.
  2. 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.
  3. Beegle, Kathleen & De Weerdt, Joachim & Friedman, Jed & Gibson, John, 2012. "Methods of household consumption measurement through surveys: Experimental results from Tanzania," Journal of Development Economics, Elsevier, vol. 98(1), pages 3-18.
  4. Menno Pradhan & Fadia Saadah & Robert Sparrow, 2007. "Did the Health Card Program Ensure Access to Medical Care for the Poor during Indonesia's Economic Crisis?," World Bank Economic Review, World Bank Group, vol. 21(1), pages 125-150.
  5. Thomas F. Crossley & Joachim K. Winter, 2014. "Asking Households about Expenditures: What Have We Learned?," NBER Chapters, in: Improving the Measurement of Consumer Expenditures National Bureau of Economic Research, Inc.
  6. Martin Browning & Thomas F. Crossley & Guglielmo Weber, 2002. "Asking Consumption Questions in General Purpose Surveys," Social and Economic Dimensions of an Aging Population Research Papers 77, McMaster University.
  7. 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.
  8. 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.
  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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