Publication:
Prices and welfare

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dc.contributor.authorAraar, Abdelkrim
dc.contributor.authorVerme, Paolo
dc.date.accessioned2016-03-09T18:00:55Z
dc.date.available2016-03-09T18:00:55Z
dc.date.issued2016-02
dc.description.abstractWhat is the welfare effect of a price change? This simple question is one of the most relevant and controversial questions in microeconomic theory and its different answers can lead to severe heterogeneity in empirical results. This paper returns to this question with the objective of providing a general framework for the use of theoretical contributions in empirical works, with a particular focus on poor people and poor countries. Welfare measures (such as Equivalent Variation or Consumer's Surplus) and computational methods (such as Taylor's approximations or the Vartia method) are compared to test how these choices result in different welfare measurement under different price shock scenarios. As a rule of thumb and irrespective of parameter choices, welfare measures converge to approximately the same result for price changes below 10 percent. 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. Under standard utility assumptions, the Laspeyers and Paasche variations are always the outer bounds of welfare estimates and consumer surplus is always the median estimate. The paper also introduces a new simple welfare approximation, clarifies the relation between Taylor's approximations and the income and substitution effects, and provides an example for treating nonlinear pricing. Stata codes for all computations are provided in annex.en
dc.identifierhttp://documents.worldbank.org/curated/en/2016/02/25927341/prices-welfare
dc.identifier.doi10.1596/1813-9450-7566
dc.identifier.urihttps://hdl.handle.net/10986/23897
dc.languageEnglish
dc.language.isoen_US
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 7566
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectPRICE DECREASES
dc.subjectPARTICULAR COUNTRY
dc.subjectSUBSTITUTION
dc.subjectWELFARE ECONOMICS
dc.subjectPRICE INCREASES
dc.subjectUTILITY FUNCTIONS
dc.subjectSUBSTITUTE GOODS
dc.subjectDEMAND FUNCTIONS
dc.subjectINDEX NUMBERS
dc.subjectSALES
dc.subjectINCOME
dc.subjectINTEREST
dc.subjectGOVERNMENT REVENUES
dc.subjectEXCHANGE
dc.subjectUTILITY MAXIMIZATION
dc.subjectINFORMATION
dc.subjectDEVELOPING COUNTRIES
dc.subjectELASTICITY
dc.subjectENGEL CURVE
dc.subjectWELFARE
dc.subjectDISTRIBUTION
dc.subjectVARIABLES
dc.subjectTAX SYSTEMS
dc.subjectPRICING
dc.subjectPRICE
dc.subjectTAX
dc.subjectREAL INCOME
dc.subjectPC
dc.subjectOPEN ACCESS
dc.subjectPRICE VARIATION
dc.subjectCHOICE
dc.subjectDATA
dc.subjectPRICE STRUCTURE
dc.subjectSAVINGS
dc.subjectCONSUMER SURPLUS
dc.subjectMONEY
dc.subjectFOOD PRICE
dc.subjectPRICE_INDEX
dc.subjectOUTPUTS
dc.subjectSURPLUS
dc.subjectPRODUCTS
dc.subjectECONOMETRICS
dc.subjectCOST OF LIVING
dc.subjectPRODUCTIVITY
dc.subjectDEMAND CURVES
dc.subjectINCOME EFFECTS
dc.subjectPRICE SCHEDULE
dc.subjectWEB
dc.subjectECONOMICS LITERATURE
dc.subjectCONSUMER PREFERENCES
dc.subjectPRICE ELASTICITY
dc.subjectPRODUCT
dc.subjectUTILITY
dc.subjectNOMINAL INCOME
dc.subjectCONSUMER DEMAND
dc.subjectSUBSTITUTES
dc.subjectSUBSIDIES
dc.subjectECONOMIC RESEARCH
dc.subjectTAXES
dc.subjectPRICE CHANGE
dc.subjectEXPENDITURE
dc.subjectNORMAL GOOD
dc.subjectTRANSACTIONS
dc.subjectEQUITY
dc.subjectCONSUMPTION
dc.subjectRELIABILITY
dc.subjectSURPLUSES
dc.subjectSUBSTITUTE
dc.subjectWAGES
dc.subjectRESULTS
dc.subjectPRICE ADJUSTMENTS
dc.subjectLORENZ CURVE
dc.subjectMARKET PRICES
dc.subjectVALUE
dc.subjectELECTRICITY
dc.subjectFREE MARKET
dc.subjectDEMAND
dc.subjectUTILITY FUNCTION
dc.subjectDEMAND FUNCTION
dc.subjectPRICE CHANGES
dc.subjectEXPENDITURES
dc.subjectAGRICULTURE
dc.subjectCONSUMERS
dc.subjectINCOMES
dc.titlePrices and welfareen
dc.typeWorking Paperen
dc.typeDocument de travailfr
dc.typeDocumento de trabajoes
dspace.entity.typePublication
okr.crossref.titlePrices and Welfare
okr.date.disclosure2016-02-16
okr.doctypePublications & Research
okr.doctypePublications & Research::Policy Research Working Paper
okr.docurlhttp://documents.worldbank.org/curated/en/2016/02/25927341/prices-welfare
okr.guid572361467988949538
okr.identifier.doi10.1596/1813-9450-7566
okr.identifier.externaldocumentum090224b08418514a_1_0
okr.identifier.internaldocumentum25927341
okr.identifier.reportWPS7566
okr.importedtrue
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2016/02/16/090224b08418514a/1_0/Rendered/PDF/Prices0and0welfare.pdfen
okr.topicMacroeconomics and Economic Growth::Economic Theory & Research
okr.topicPoverty Reduction::Inequality
okr.topicMacroeconomics and Economic Growth::Economic Conditions and Volatility
okr.unitPoverty and Equity Global Practice Group (GPVDR)
relation.isAuthorOfPublicationc0b4c90d-8da0-5e41-b52e-aaa2bcb4c18e
relation.isAuthorOfPublication.latestForDiscoveryc0b4c90d-8da0-5e41-b52e-aaa2bcb4c18e
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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