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Subjective economic welfare

  • Ravallion, Martin
  • Lokshin, Michael

Paradoxically, when economists analyze a policy's impact on welfare they typically assume that people are the best judges of their own welfare, yet resist directly asking them if they are better off. Early ideas of"utility"were explicitly subjective, but modern economists generally ignore people's expressed views about their own welfare. Even using a broad set of conventional socioeconomic data may not reflect well people's subjective perceptions of their poverty. The authors examine the determinants of subjective economic welfare in Russia, including its relationship to conventional objective indicators. For data on subjective perceptions, they use survey responses in which respondents rate their level of welfare from"poor"to"rich"on a nine-point ladder. As an objective indicator of economic welfare, they use the most common poverty indicator in Russia today, in which household incomes are deflated by household-specific poverty lines. Paradoxically, when economists analyze a policy's impact on welfare they typically assume that people are the best judges of their own welfare, yet resist directly asking them if they are better off. Early ideas of"utility"were explicitly subjective, but modern economists generally ignore people's expressed views about their own welfare. Even using a broad set of conventional socioeconomic data may not reflect well people's subjective perceptions of their poverty. The authors examine the determinants of subjective economic welfare in Russia, including its relationship to conventional objective indicators. For data on subjective perceptions, they use survey responses in which respondents rate their level of welfare from"poor"to"rich"on a nine-point ladder. As an objective indicator of economic welfare, they use the most common poverty indicator in Russia today, in which household incomes are deflated by household-specific poverty lines.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2106.

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Date of creation: 30 Apr 1999
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Handle: RePEc:wbk:wbrwps:2106
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  1. Nelson, Julie A, 1993. "Household Equivalence Scales: Theory versus Policy?," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 471-93, July.
  2. Kapteyn, Arie, 1994. "The Measurement of Household Cost Functions: Revealed Preference versus Subjective Measures," Journal of Population Economics, Springer, vol. 7(4), pages 333-50, November.
  3. Ed Diener, 1994. "Assessing subjective well-being: Progress and opportunities," Social Indicators Research, Springer, vol. 31(2), pages 103-157, February.
  4. Kapteyn, A.J. & Kooreman, P. & Willemse, R., 1987. "Some methodological issues in the implementation of subjective poverty definitions," Research Memorandum FEW 245, School of Economics and Management.
  5. repec:ner:tilbur:urn:nbn:nl:ui:12-364386 is not listed on IDEAS
  6. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
  7. Frank, Robert H, 1997. "The Frame of Reference as a Public Good," Economic Journal, Royal Economic Society, vol. 107(445), pages 1832-47, November.
  8. Pollak, R.A., 1990. "Welfare Comparisons And Situations Comparisons," Discussion Papers in Economics at the University of Washington 90-11, Department of Economics at the University of Washington.
  9. Lanjouw, Peter & Ravallion, Martin & DEC, 1994. "Poverty and household size," Policy Research Working Paper Series 1332, The World Bank.
  10. Kapteyn, A.J., 1994. "The measurement of household cost functions : Revealed preference versus subjective measures," Discussion Paper 1994-3, Tilburg University, Center for Economic Research.
  11. Veall, Michael R & Zimmermann, Klaus F, 1996. " Pseudo-R-[superscript 2] Measures for Some Common Limited Dependent Variable Models," Journal of Economic Surveys, Wiley Blackwell, vol. 10(3), pages 241-59, September.
  12. Pradhan, Menno & Ravallion, Martin, 1998. "Measuring poverty using qualitative perceptions of welfare," Policy Research Working Paper Series 2011, The World Bank.
  13. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-31, November.
  14. Pollak, Robert A & Wales, Terence J, 1979. "Welfare Comparisons and Equivalence Scales," American Economic Review, American Economic Association, vol. 69(2), pages 216-21, May.
  15. van Praag, Bernard M. S., 1991. "Ordinal and cardinal utility : An integration of the two dimensions of the welfare concept," Journal of Econometrics, Elsevier, vol. 50(1-2), pages 69-89, October.
  16. Blackorby, Charles & Donaldson, David, 1987. "Welfare ratios and distributionally sensitive cost-benefit analysis," Journal of Public Economics, Elsevier, vol. 34(3), pages 265-290, December.
  17. repec:ner:tilbur:urn:nbn:nl:ui:12-364358 is not listed on IDEAS
  18. Browning, Martin, 1992. "Children and Household Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1434-75, September.
  19. repec:dgr:kubcen:19943 is not listed on IDEAS
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