The Measurement of Household Welfare
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Introduction
Parenthood has costs as well as benefits. Children must be fed, clothed, housed, and educated, and the resulting expenditures leave parents with less to spend on themselves. In addition, because some governments attempt to compensate families for the costs of children, reasonable estimates of the costs of children are a prerequisite for sensible policies.
But how should the costs of children be measured? We might choose, for example, to assume that the costs of a first child are the same for all families, regardless of income, or we might choose to include or disregard the psychic benefits to parents. In addition, because parents cannot typically imagine the childless alternative, interpersonal comparisons of levels of well-being between individuals in different households are necessary for the construction of sensible indexes.
This chapter presents a theoretical framework for indexes of the costs of children using a methodology that is closely related to household equivalence scale techniques (see, as an example, Blackorby and Donaldson, 1988, 1991). Households' demand behaviour is assumed to be rationalised by standard preferences, individuals in each household are assumed to be equally well off, and comparisons of levels of utility between individuals in different households are assumed to be possible (see p. 52 below).
In this framework, we introduce general classes of cost-of-children indexes (p. 53). The first class – relative cost-of-children indexes – regards the cost as equal in percentage terms for all households, while the second class – absolute cost-of-children indexes – regards the cost as equal in absolute terms.
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