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Estimation of Equivalence Scales Under Convertible Rationing

Authors


  • Note: I wish to express my special debt to John Muellbauer for his suggestions. Comments on the earlier drafts of this paper by Frank Cowell, Assad Monajemi, and Hashem Pesaran are also gratefully acknowledged. I also wish to thank Ran Liu for help in preparing the final draft. They bear of course no responsibility for remaining errors or shortcomings, which are mine alone.

Correspondence to: Feridoon Koohi-Kamali, Department of Economics, Franklin and Marshall College, Lancaster, PA 717-358-4869, USA (fkkecon@gmail.com).

Abstract

This paper provides estimates of equivalence scales based on three Quadratic Almost Ideal type models of the food share with coupon resale, and on their extended versions. A chief feature of the models is the method of dealing with infrequency of zero expenditure on coupon goods through imputation. The models are applied to an Iranian wartime budget survey. The results indicate little scope for measurement error. However, they also reveal a strong cross-section price effect, which proves robust to a variety of checks. The effect of price heterogeneity proves critical in identification of the scale estimates, providing relatively rare empirical evidence consistent with the Base Independence (BI) hypothesis. The BI food share estimates of cost of children have plausible values.

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