Adult-equivalence scales and the economic implementation of interpersonal comparisons of well-being

Abstract

Equivalence Scale Exactness (ESE) or Independence of Base (IB), a condition on household preferences and interpersonal comparisons, makes adultequivalence scales independent of utility levels. ESE is characterized by IncomeRatio Comparability (IRC) which assumes that utility equality is preserved by income scaling. If E S E / I R C is a maintained hypothesis, equivalence scales can be estimated from behaviour alone if preferences are not piglog. This condition is not met by a family of translog expenditure functions or by the Almost Ideal Demand System. A translog expenditure function can be used for the 'reference' household, however, together with an independent specification of the equivalence scale.

Tricks With Hicks: The Easi Demand System

“…This property for E is called equivalence scale exactness (ESE) or independence-of-base (IB) by Blackorby and Donaldson (1993) and Lewbel (1989), respectively. Shape invariance is a necessary condition for IB/ESE.…”

Are Equivalence Scales the Same for the United States and Canada?

“…(For relatively recent examples, see Blackorby and Donaldson, 1989;Blundell, Pashardes andWeber 1989, 1984;Deaton, et al, 1989;Johnson and Garner, 1993;Jorgenson and Slesnick, 1987;Lewbel, 1989a and 19893;Nelson, 1992;Phipps, 1990;Ray, 1986.) Unfortunately, no consensus has emerged about how best to estimate equivalence scales (or even if it is possible to estimate equivalence scales-see Nicholson, 1976;Pollak and Wales, 1979;Blundell and Lewbel, 1991).…”

Measuring the cost of children

“…Alternatively, a new concept of scales, based on a technical property called independence of base/equivalence scale exactness (IB/ESE), has been developed that is consistent, though in [6], [7]. Generally considered an acceptable compromise between flexibility and parsimony, IB/ESE scales are believed to neither overestimate nor underestimate the true cost of children and are thus in common use.…”