Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/69530
Authors: 
Jäntti, Markus
Kanbur, Ravi
Nyyssölä, Milla
Pirttilä, Jukka
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper: Behavioural Economics 4095
Abstract: 
This paper examines the measurement of social welfare, poverty and inequality taking into account reference-dependence, loss aversion and diminishing sensitivity - aspects emphasized in Prospect Theory - to social welfare measurement. We suggest a new notion of equivalent income, the income level with which the individual would be as well off, evaluated using a standard utility function, as he/she actually is, evaluated with a reference-dependent utility function. We examine the differences between standard poverty and inequality measures based on observed income and measures that are calculated based on equivalent income. These differences are illustrated using household-level panel data from Russia and Vietnam.
Subjects: 
Prospect Theory
poverty
inequality
welfare measurement
vulnerability
JEL: 
I32
O12
Document Type: 
Working Paper

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