EquivalenceversusIndifference Scales

Abstract

Comparing income levels across families with different composition is a central issue for most welfare indicators and policies. Currently, the dominant method relies on income‐based equivalence scales, which raise a host of theoretical, empirical and normative difficulties. However, a new approach, based on the notion of indifference scales, avoids most of these problems, while leading to empirically tractable estimation methods. I submit that time has come to abandon the traditional view in favour of the new concept.