Household welfare measurement and the pricing of basic services
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.
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- 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.
- Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, December.
- Lanjouw, Jean Olson & Lanjouw, Peter, 1997. "Poverty comparisons with non-compatible data: theory and illustrations," Policy Research Working Paper Series 1709, The World Bank.
- 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.
- 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.
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