Equivalent income

Abstract

Equivalent income provides a framework for comparing individual living standards across diverse non-income dimensions, such as health, household size, and environmental quality. It represents the hypothetical income level that would yield an individual’s current satisfaction if all non-monetary attributes were set at specific reference values. This metric offers a philosophically robust method for interpersonal comparisons within social welfare evaluation by prioritizing individual preferences over subjective states of happiness or fixed objective lists. Unlike extended preference models that rely on risk attitudes, or subjective well-being measures prone to adaptation and scaling biases, equivalent income grounds comparisons in the actual objects of preference. It further addresses rigidities in the capability approach by permitting heterogeneous weights for different dimensions of life, thereby respecting pluralistic conceptions of the good life. While the selection of reference parameters involves normative choices, these parameters allow the measure to remain flexible and sensitive to specific fairness principles. Ultimately, equivalent income functions as a cardinal and comparable index that facilitates rigorous distributive analysis while maintaining respect for individual sovereignty. – AI-generated abstract.