Assessing Asset Indices

This paper compares how results using
various methods to construct asset indices match results
using per capita expenditures. The analysis shows that
inferences about inequalities in education, health care use,
fertility, child mortality, as well as labor market outcomes
are quite robust to the specific economic status measure
used. The measures-most significantly per capita
expenditures versus the class of asset indices-do not,
however, yield identical household rankings. Two factors
stand out in predicting the degree of congruence in rankings
between per capita expenditures and an asset index. First
is the extent to which per capita expenditures can be
explained by observed household and community
characteristics. In settings with small transitory shocks
to expenditure, or with little measurement error in
expenditure, the rankings yielded by the alternative
approaches are most similar. Second is the extent to which
expenditures are dominated by individually consumed goods
such as food. Asset indices are typically derived from
indicators of goods which are effectively public at the
household level, while expenditures are often dominated by
food, an almost exclusively private good. In settings where
private goods such as food are the main component of
expenditures, asset indices and per capita consumption yield
the least similar results, although adjusting for economies
of scale in household expenditures reconciles the results somewhat.