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Empirical Economics

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20-06-2018

Prices and welfare: a comparative analysis of measures and computational methods

Authors: Abdelkrim Araar, Paolo Verme

Published in: Empirical Economics | Issue 4/2019

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Abstract

What is the welfare effect of a price change? The paper addresses this question by empirically comparing welfare measures and computational methods under different demand systems, parameters choices and price shocks. In the context of individual welfare and as a rule of thumb, welfare measures converge to approximately the same values for price changes below 10%. Above this threshold, these measures start to diverge significantly. Budget shares play an important role in explaining such divergence, whereas the choice of demand system has a minor role. These findings generally hold in the context of social welfare. Statistical inference and stochastic dominance help to refine results, particularly for the lower parts of the income distributions.

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This Survey was conducted by the United States Department of Agriculture. The full documentation for the survey can be found at: https://www.ars.usda.gov/northeast-area/beltsville-md/beltsville-human-nutrition-research-center/food-surveys-research-group/docs/past-surveys. The sample used for this paper consists of 4048 households. See also Poi (2002).

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See for instance Ramskov and Munksgaard (2001).

We used the Stata command gen imp_wel = _n*(3+0.05*uniform()).

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Title: Prices and welfare: a comparative analysis of measures and computational methods
Authors: Abdelkrim Araar
Paolo Verme
Publication date: 20-06-2018
Publisher: Springer Berlin Heidelberg
Published in: Empirical Economics / Issue 4/2019
Print ISSN: 0377-7332
Electronic ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-018-1492-x

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