Reference-Price Independent Welfare Prescriptions

A number of studies have evaluated the social welfare impact of price and income changes using equivalent incomes that are computed at some reference price vector, and an aggregator with these equivalent incomes as arguments in place of a social welfare function. This paperinvestigates the impact ofthe choice ofthe reference price vector on the results ofsuch exercises, distinguishing the case ofindividualized prices from the constrained case where all individuals face the same price vector. We characterize preferences and aggregators leading to reference-price-independent welfare prescriptions.

Laisney, François, C. Blackorby and R. Schmachtenberg (1991), Reference-Price Independent Welfare Prescriptions, ZEW Discussion Paper No. 91-04, Mannheim.