Equivalence Scale Analysis
Equivalence scales convert a household's total income or consumption into a measure of the living standard of its members, adjusting for the fact that larger households need more resources but also share them — there are economies of scale in housing, utilities, and durables, and children typically cost less than adults. Dividing household resources by the scale yields equivalized income, the per-equivalent-adult quantity that makes welfare comparable across households of different size and composition. The theory traces to Deaton and Muellbauer's treatment in Economics and Consumer Behavior (1980), and Buhmann and colleagues' 1988 cross-country study showed that inequality and poverty rankings can be strikingly sensitive to which scale is chosen.
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- Deaton, A., & Muellbauer, J. (1980). Economics and Consumer Behavior. Cambridge: Cambridge University Press. · ISBN 9780521296762
- Buhmann, B., Rainwater, L., Schmaus, G., & Smeeding, T. M. (1988). Equivalence scales, well-being, inequality, and poverty: sensitivity estimates across ten countries using the Luxembourg Income Study database. Review of Income and Wealth, 34(2), 115–142. · DOI 10.1111/j.1475-4991.1988.tb00564.x
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