Social and Behavioral Sciences Commons^™

Two Can Live As Cheaply As One...But Three’S A Crowd, Christopher Bollinger, Cheti Nicoletti, Stephen Pudney

University of Kentucky Center for Poverty Research Discussion Paper Series

To measure poverty, incomes must be equivalized across households with different structures. In this paper, we use a very flexible ordered response model to analyze the relationship between income, demographic structure and subjective assessments of financial wellbeing drawn from the 1991-2008 British Household Panel Survey. Our results suggest the existence of large scale economies within marital/cohabiting couples, but substantial diseconomies from the addition of children or further adults. This pattern contrasts sharply with commonly-used equivalence scales, and is consistent with explanations in terms of the capital requirements associated with additions to the core couple.