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Household welfare measurement and the pricing of basic services

Author

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  • Hentschel, Jesko
  • Lanjouw, Peter

Abstract

The authors discuss when and how to adjust expenditures derived from household surveys to reflect the consumption of basic services. They discuss simple adjustment methods for markets that are subsidized, rationed, or subject to increasing marginal tariff pricing. Using Ecuador as an example, they show how incorporating adjustments in markets for water, electricity, and cooking gas can significantly alter estimates of poverty and are therefore important to comprehensive measure of welfare. For Ecuador, adjustments must be made for water, for example, because the nonpoor urban population often has access to subsidized public water and the poor depend on the private market; adjustments must be made for electricity because increasing marginal tariff rates lead to different prices per kilowatt-hour (kwh). Adjustments need not be made for cooking gas, which is highly subsidized in Ecuador, because the amount consumers use is not rationed. The authors compare the sensitivity of poverty indicators and the poverty profile in Ecuador to adjustments in nominal expenditures for basic services in Ecuador. The poverty indicators (headcount and the poverty gap for extreme poverty) showed changes that were statistically significant. The results dramatize how important it is to carefully analyze markets for basic services when deriving welfare measures from household surveys. Such adjustments, by improving the measure of welfare, can also encourage wider acceptance and use of consumption as welfare indicator and a guide for developing public policy.

Suggested Citation

  • Hentschel, Jesko & Lanjouw, Peter, 1998. "Household welfare measurement and the pricing of basic services," Policy Research Working Paper Series 2006, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2006
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    References listed on IDEAS

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    1. Martin Ravallion & Gaurav Datt, 1995. "Is Targeting Through a Work Requirement Efficient? Some Evidence for Rural India," Monash Economics Working Papers archive-41, Monash University, Department of Economics.
    2. Hope, Einar & Singh, Balbir, 1995. "Energy price increases in developing countries : case studies of Colombia, Ghana, Indonesia, Malaysia, Turkey, and Zimbabwe," Policy Research Working Paper Series 1442, The World Bank.
    3. Hentschel, J. & Lanjouw, P., 1996. "Constructing an Indicator of Consumption for the Analysis of Poverty. Principles and Illustrations with Reference to Ecuador," Papers 127, World Bank - Living Standards Measurement.
    4. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, August.
    5. Lanjouw, Jean Olson & Lanjouw, Peter, 1997. "Poverty comparisons with non-compatible data: theory and illustrations," Policy Research Working Paper Series 1709, The World Bank.
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    Cited by:

    1. repec:ilo:ilowps:385551 is not listed on IDEAS
    2. repec:eee:ijrema:v:30:y:2013:i:1:p:4-18 is not listed on IDEAS
    3. Deichman, Uwe & Lall, Somik V. & Suri, Ajay & Rajoria, Pragya, 2003. "Information-based instruments for improved urban management," Policy Research Working Paper Series 3002, The World Bank.
    4. Deichmann, Uwe & Lall, Somik V., 2007. "Citizen Feedback and Delivery of Urban Services," World Development, Elsevier, vol. 35(4), pages 649-662, April.
    5. Frank-Borge Wietzke, 2015. "Who Is Poorest? An Asset-based Analysis of Multidimensional Wellbeing," Development Policy Review, Overseas Development Institute, vol. 33(1), pages 33-59, January.
    6. Vishal Narayan & Vithala R. Rao & K. Sudhir, 2015. "Early Adoption of Modern Grocery Retail in an Emerging Market: Evidence from India," Marketing Science, INFORMS, vol. 34(6), pages 825-842, November.
    7. Anker, Richard,, 2006. "A new methodology for estimating internationally comparable poverty lines and living wage rates," ILO Working Papers 993855513402676, International Labour Organization.
    8. Deichmann, Uwe & Lall, Somik V., 2003. "Are you satisfied? citizen feedback and delivery of urban services," Policy Research Working Paper Series 3070, The World Bank.
    9. Irina Klytchnikova & Michael Lokshin, 2009. "Measuring Welfare Gains from Better Quality Infrastructure," Journal of Infrastructure Development, India Development Foundation, vol. 1(2), pages 87-109, December.
    10. Jan Priebe, 2014. "Official Poverty Measurement in Indonesia since 1984: A Methodological Review," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 50(2), pages 185-205, August.
    11. van den Boom,Bart & Halsema,Alex & Molini,Vasco, 2015. "Are we confusing poverty with preferences ?," Policy Research Working Paper Series 7247, The World Bank.

    More about this item

    Keywords

    Health Economics&Finance; Environmental Economics&Policies; Economic Theory&Research; Water and Industry; Water Conservation; Environmental Economics&Policies; Town Water Supply and Sanitation; Economic Theory&Research; Health Economics&Finance; Water and Industry;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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