Well-Being Measurement with Reference Consumption

44 Pages Posted: 11 Apr 2024

See all articles by Francois Maniquet

Francois Maniquet

Catholic University of Louvain (UCL)

Domenico Moramarco

University of Bari

Abstract

We axiomatically study how to measure well-being when individuals have heterogeneous preferences and consumption bundles are evaluated by comparison with some reference bundle (a poverty line bundle, an index of needs, the average consumption in a reference group, etc.). Our key requirement is that well-being remains constant if the reference bundle changes towards a bundle that the individual deems equivalent. Accounting for preferences may lead two individuals with identical consumption and reference bundles to have unequal well-being levels. To limit this inequality, we study four axioms based on the lattice structure of the set of indifference contours. We define and characterize three measures. One prominent measure corresponds to the ratio between equivalent income at consumption and at reference, where prices are chosen to maximize this ratio.

Keywords: well-being measurement, heterogeneous preferences, reference, lattice, D63, I30

Suggested Citation

Maniquet, Francois and Moramarco, Domenico, Well-Being Measurement with Reference Consumption. Available at SSRN: https://ssrn.com/abstract=4791459 or http://dx.doi.org/10.2139/ssrn.4791459

Francois Maniquet (Contact Author)

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Domenico Moramarco

University of Bari ( email )

Italy

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