Measuring Welfare and Inequality with Incomplete Price Information

77 Pages Posted: 8 May 2020

See all articles by David Atkin

David Atkin

Massachusetts Institute of Technology (MIT)

Benjamin Faber

University of California, Berkeley - Department of Economics

Thibault Fally

UC Berkeley - ARE Department

Marco Gonzalez-Navarro

UC Berkeley

Date Written: April 2020

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 microdata, we show that we can recover income-specific equivalent and compensating variations 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 convergence documented by the existing literature that uses the subset of consumption with well-measured prices to calculate inflation.

JEL Classification: D12, E31, F63, O12

Suggested Citation

Atkin, David and Faber, Benjamin and Fally, Thibault and Gonzalez-Navarro, Marco, Measuring Welfare and Inequality with Incomplete Price Information (April 2020). CEPR Discussion Paper No. DP14550, Available at SSRN: https://ssrn.com/abstract=3594171

David Atkin (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Benjamin Faber

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Thibault Fally

UC Berkeley - ARE Department ( email )

Berkeley, CA 94720
United States

HOME PAGE: http://are.berkeley.edu/~fally/

Marco Gonzalez-Navarro

UC Berkeley ( email )

207 Giannini Hall
Berkeley, CA 94720
United States

HOME PAGE: http://www.marcogonzaleznavarro.com

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