The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Equivalence Scales

  • Arthur Lewbel
  • Krishna Pendakur
Reference work entry


An equivalence scale is a measure of the cost of living of a household of a given size and demographic composition, relative to the cost of living of a reference household (usually a single adult), when both households attain the same level of utility or standard of living. Equivalence scales are difficult to construct because household utility cannot be directly measured, which results in economic identification problems. Applications of equivalence scales include measurement of social welfare, economic inequality, poverty, and costs of children; indexing payments for social benefits, life insurance, alimony, and legal compensation for wrongful death.


Consumer expenditure Engel scales Equivalence scales Happiness, economics of Interpersonal utility comparisons Marshallian demand functions Neuroeconomics Poverty lines Revealed preference theory Rothbard scales Shephard’s Lemma Wellbeing 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Arthur Lewbel
    • 1
  • Krishna Pendakur
    • 1
  1. 1.