EQUIVALENCE SCALE EXACTNESS AND STOCHASTIC INDIFFERENCE Cover Image

DOKŁADNOŚĆ SKAL EKWIWALENTNOŚCI A INDYFERENCJA STOCHASTYCZNA
EQUIVALENCE SCALE EXACTNESS AND STOCHASTIC INDIFFERENCE

Author(s): Stanisław Maciej Kot
Subject(s): Economy
Published by: Szkoła Główna Gospodarstwa Wiejskiego w Warszawie
Keywords: equivalence scales; scale exactness; stochastic indifference; expenditure distribution;

Summary/Abstract: In this paper we prove the theorem, which links the equivalence scale exactness (ESE) assumption with the symmetric factor of the first order stochastic dominance. Namely, let X and Y be the expenditure distributions of an analysed group of households and the reference household group, respectively. Let Z be the X distribution adjusted by an equivalence scale. If the ESE assumption holds then Z will be the first order stochastically indifferent with Y. However, stochastic indifference (SI) does not imply ESE. This means that SI is a weaker assumption than ESE. We propose to calculate equivalence scales based on SI criterion when ESE is violated.

  • Issue Year: XV/2014
  • Issue No: 3
  • Page Range: 145-158
  • Page Count: 14
  • Language: Polish
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