Household budget-share distributions and welfare implications: an application of multivariate distributional statistics

In this paper the consequences of considering the household ‘food share’ distribution as a welfare measure, in isolation from the joint distribution of itemized budget shares, is examined through the unconditional and conditional distribution of ‘food share’ both parametrically and nonparametrically. The parametric framework uses Dirichlet and Beta distributions, while the nonparametric framework uses kernel smoothing methods. The analysis, in a three commodity setup (‘food’, ‘durables’, ‘others’), based on household level rural data for West Bengal, India, for the year 2009–2010 shows significant underrepresentation of households by the conventional unconditional ‘food share’ distribution in the higher range of food budget shares that correspond to the lower end of the income profile. This may have serious consequences for welfare measurement.