Volume 23, Number 2 (Spring) 1988
van Praag, Bernard M. S. and Nico L. van der Sar. 1988. "Household Cost Functions and Equivalence Scales." Journal of Human Resources 23(2):193-210.
We describe a simple method to estimate household cost functions and family equivalence scales. It is an alternative to standard methods as it does not assume strong postulates about utility maximization nor any functionality specified model equations. The data requirements are extremely modest. We assume interpersonal ordinal comparability in the sense of Sen (1976) and use empirical evidence for eight European countries and the U.S. to show the feasibility of the method and the stability of its results. We also show that subjective data like those provided by income evaluation questions may be used without adopting a cardinal utility framework.
Van
Praag is a professor of economics at the Econometric Institute, Erasmus
University, Rotterdam, and a member of the Scientific Council for Government
Policy of the Netherlands. Van der Sar is an assistant professor of business
finance at Erasmus University in Rotterdam, the Netherlands. When the authors
began preparing the paper, Van Praag was affiliated with the Center for Research
in Public Economics of Leyden University and a fellow of the Netherlands
Institute for the Advancement of the Sciences at Wasenaar. He created this
paper's European data set jointly with Aldi Hagenaars and Hans Van Weeren, with
financial support from the European Community, Brussels.
The American data set was made available by Steven Dubnoff of
the Survey Research Center, University of Massachusetts, Boston. It was created
with support from a grant by the National Science Foundations.
The authors want to express their gratitude to all institutes
and individuals mentioned and also to Reuben Gronau, Aldi Hagenaars, Joop Hartog,
and Paul M. C. de Boer, who gave valuable advice during various stages of
preparation. They also are grateful to three anonymous referees for valuable
suggestions and encouraging advice. They take sole responsibility for all
remaining errors and the opinions expressed.
© 2002 by the Board of Regents of the University of Wisconsin System
US ISSN 0022-166X