Abstract
The interest in this chapter is no longer the behavioral content of commodity specific demographic functions, but an aggregate scaling function compiling all the commodity specific demographic effects. At the aggregate, information on households’ differential consumption behavior of goods and characteristics is lost. These aggregate scales represent a metric theoretically appropriate for interpersonal welfare comparisons. These scales have many potential applications in welfare analyses such as the design of tax policies and aid compensation schemes, the study of inequality and poverty, and the construction of a social welfare function. The distribution of incomes deflated by such scales provides a measure of inequality in the distribution of welfare across households (Lewbel 1989c and 1991a). Such scales are also important for inter-temporal comparisons of the same households whose saving and borrowing behavior over time is affected by price changes as well as changes in demographic characteristics (Pashardes 1991).
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Notes
An analogous approach has been adopted also by Gronau (1988:1185) and Chiappori (1992:438) with the objective of deducing intra-household allocation.
This definition of Aggregate Equivalence Scale corresponds to Lewbel’s (1991) definition of cost of characteristics index.
Donaldson and Pendakur (2003) take household composition as exogenous based on the following considerations: a) children are not consumption goods, b) parents are not “perfectly contraceptive” to the point to have complete control over fertility choices and are not fully informed about the long-term consequences of fertility decisions, and c) evolutionary theory predicts that self-interest may not be related to the desire to have children.
This information is commonly used in establishing the poverty or the indigence line in Latin America (CEPAL 1990, DANE 1989).
The epigraph at the introduction to this book offers an evidence in support to this thesis from a society, the one depicted by Verga in “The House by the Medlar Tree,” that belongs to the world patrimony of knowledge.
This condition is tested in Chapter 4 in the context of a linear AIDS model modified a la Barten-Gorman.
Here thereafter, we will refer only to the ESE/IB property which implies the condition of income ratio comparability.
Technically, we would need to recover a constant of integration K to obtain m(p,d)=K m(d). The size of the constant of integration K measures the dimension of the approximation of the demographic translating function ÎĽ(d) with respect to the welfare object of interest m(p,d).
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© 2003 Springer Science+Business Media Dordrecht
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Perali, F. (2003). Household Equivalence Scales and Interpersonal Comparisons. In: The Behavioral and Welfare Analysis of Consumption. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-3729-5_3
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DOI: https://doi.org/10.1007/978-1-4757-3729-5_3
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4419-5374-2
Online ISBN: 978-1-4757-3729-5
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