Measuring Welfare and Inequality with Incomplete Price Information

• Development Workshop

Date and Location

Tuesday, April 19, 2022, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

We propose and implement a new approach that allows us to estimate income-specific
changes in household welfare in contexts where well-measured prices are not available for
important subsets of consumption. Using rich but widely available expenditure survey mi-
crodata, we show that we can recover income-specific equivalent and compensating varia-
tions as long as preferences fall within the broad quasi-separable class (Gorman
1970
;
1976
).
Our approach is flexible enough to allow for non-parametric estimation at each point of the
income distribution. We implement this approach to estimate inflation and welfare changes
in rural India between 1987 and 2000, and to revisit the impacts of India’s trade reforms.
Our estimates reveal that lower rates of inflation for the rich erased the real income con-
vergence documented by the existing literature that uses the subset of consumption with
well-measured prices to calculate inflation.