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Welfare analysis when people are different

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  • Krishna Pendakur

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.

Suggested Citation

  • Krishna Pendakur, 2018. "Welfare analysis when people are different," Canadian Journal of Economics, Canadian Economics Association, vol. 51(2), pages 321-360, May.
    • Handle: RePEc:cje:issued:v:51:y:2018:i:2:p:321-360
    DOI: 10.1111/caje.12335
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    Cited by:

    1. Steven F. Koch, 2023. "Basic Needs (in)Security and Subjective Equivalence Scales," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 169(3), pages 723-757, October.
    2. Valérie Lechene & Krishna Pendakur & Alexander Wolf, 2020. "OLS estimation of the intra-household distribution of expenditure," IFS Working Papers W20/6, Institute for Fiscal Studies.
    3. Stanislaw Maciej Kot, 2023. "Equivalence scales for continuous distributions of expenditure," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 18(1), pages 185-218, March.
    4. Hou, Peibin & Sun, Falin & Sawadgo, Wendiam & Huseynov, Samir & Li, Wenying, 2025. "The cost of raising a child: Equivalence scales in the United States," Economics Letters, Elsevier, vol. 252(C).
    5. Grodner, Andrew & Lasso de la Vega, Casilda & Salas, Rafael & Zeager, Lester A., 2022. "A local equivalence scale and its information basis," Economics Letters, Elsevier, vol. 216(C).
    6. NIKIEMA, Relwendé Apollinaire, 2024. "Intrahousehold Consumption Inequality, Economies of Scale, Indifference Scales, and Family Structure," IDE Discussion Papers 915, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    7. Wenying Li & Jeffrey H. Dorfman, 2021. "Intrahousehold Economies of Scale with Application to Food Assistance and Work Incentive Programs," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(4), pages 1251-1267, August.
    8. Craig Gundersen, 2024. "A reconsideration of food insecurity trends in the United States," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(4), pages 1286-1300, December.
    9. Bose-Duker,Theophiline & Gaddis,Isis & Kilic,Talip & Lechene,Valérie & Pendakur,Krishna, 2021. "Diamonds in the Rough? : Repurposing Multi-Topic Surveys to Estimate Individual-Level Consumption Poverty," Policy Research Working Paper Series 9661, The World Bank.
    10. Calvi, Rossella & Penglase, Jacob & Tommasi, Denni & Wolf, Alexander, 2023. "The more the poorer? Resource sharing and scale economies in large families," Journal of Development Economics, Elsevier, vol. 160(C).
    11. NIKIEMA,Relwendé Apollinaire, 2025. "Hidden Disparities: Unveiling Intrahousehold Consumption Inequality, Economies of Scale, and Individual Poverty in West Africa," IDE Discussion Papers 952, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    12. Sarantis Tsiaplias, 2021. "The Welfare Implications of Unobserved Heterogeneity," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(4), pages 1029-1051, December.

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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