Guidelines for Constructing Consumption Aggregates for Welfare Analysis

An analyst using household survey data to construct a welfare metric is often confronted with onfronted with An analyst using household survey data to construct a welfare metric is often confronted with a number of theoretical and practical problems. What components should be included in the overall welfare measure? Should differences in tastes be taken into account when making comparisons across people and households? How best should differences in cost-of-living and household composition be taken into consideration? Starting with a brief review of the theoretical framework underpinning typical welfare analysis undertaken based on household survey data, this paper provides some practical guidelines and advice on how best to tackle such problems. It outlines a three-part procedure for constructing a consumption-based measure of individual welfare: 1) aggregation of different components of household consumption to construct a nominal consumption aggregate; 2) construction of price indices to adjust for differences in prices faced by households; and 3) adjustment of the real consumption aggregate for differneces in household composition. Examples based on survey data fro eight countries--Ghana, Vietnam, Nepal, the Kyrgyz Republic, Ecuador, South Africa, Panama, and Brazil--are used to illustrate the various steps involved in constructing the welfare measure, and the STATA programs used for this purpose are provided in the appendix. The paper also includes examples of some analytic techniques used to examine the robustness of the estimated welfare measure to underlying assumptions.

Bibliographic Details

Main Authors:	Deaton, Angus, Zaidi, Salman
Language:	English en_US
Published:	2002-05
Subjects:	AGRICULTURE, AVERAGE LEVEL, CASE STUDIES, CONCEPTUAL FRAMEWORK, CONSUMER PREFERENCES, CONSUMERS, CONSUMPTION AGGREGATE, CONSUMPTION BUNDLE, CONSUMPTION DATA, CONSUMPTION MEASURES, CONSUMPTION SURVEYS, COST FUNCTIONS, DATA SETS, DEFLATION, DEMAND FUNCTIONS, DEVELOPING COUNTRIES, DEVELOPMENT RESEARCH, DISTRIBUTIONAL EFFECTS, DURABLE GOODS, ECONOMIC MANAGEMENT, ECONOMISTS, EMPIRICAL LITERATURE, EMPLOYMENT, EXPENDITURE MEASURE, EXPENDITURE SURVEY, EXPENDITURES, FARM HOUSEHOLDS, FIXED PRICES, FOOD CONSUMPTION, HEALTH STATUS, HOUSEHOLD COMPOSITION, HOUSEHOLD CONSUMPTION, HOUSEHOLD DATA, HOUSEHOLD EXPENDITURE, HOUSEHOLD EXPENDITURES, HOUSEHOLD MEMBERS, HOUSEHOLD SIZE, HOUSEHOLD SURVEY, HOUSEHOLD SURVEYS, HUMAN WELFARE, INCOME, INCOME DATA, INCOME DISTRIBUTION, INCOMES, INDIFFERENCE CURVE, INDIFFERENCE CURVES, INDIVIDUAL INCOME, INEQUALITY, LEISURE, LIVING INDEX, LIVING STANDARDS, LIVING STANDARDS MEASUREMENT, LIVING STANDARDS MEASUREMENT STUDY, MARGINAL VALUE, MONEY INCOME, NATIONAL INCOME, NATIONAL INCOME ACCOUNTING, NON-FOOD ITEMS, POLICY ANALYSIS, POLICY ISSUES, POLICY MAKERS, POOR COUNTRIES, POVERTY ANALYSIS, POVERTY LINE, POVERTY REDUCTION, PRESENT VALUE, PRICE DIFFERENCES, PRICE INDEXES, PRICE RELATIVES, PRICE VECTOR, PRICE VECTORS, PUBLIC GOOD, PUBLIC GOODS, QUESTIONNAIRE, REDISTRIBUTIVE POLICY, REGIONAL PRICE DIFFERENCES, RELATIVE PRICES, SMALL BUSINESS, SPATIAL CONTEXT, STATISTICAL OFFICES, SURVEY, UTILITY LEVEL, UTILITY POVERTY, WAGE INCOME, WEALTH, WELFARE EFFECTS,
Online Access:	http://documents.worldbank.org/curated/en/2002/05/1944189/guidelines-constructing-consumption-aggregates-welfare-analysis https://hdl.handle.net/10986/14101
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