We admit it is flawed: Big Macs are not traded across borders as the PPP theory demands, and prices are distorted by taxes, tariffs, different profit margins and differences in the cost of non-tradables, such as rents.
This study advances the analysis of differences in the cost of care provided to patients in different clinical settings.
The New York model also factors in regional differences in the cost of living.
The Bank said the change reflects new data on differences in the cost of living across countries, while preserving the real purchasing power of the previous yardstick.
Data on health care spending per capita are measured using "purchasing power parities" – that is, they are adjusted for international differences in the cost of living.
Medicare payments to H.M.O.'s vary by county, reflecting differences in the cost of care provided by doctors and hospitals in the fee-for-service program.
Both are flawed as measures of PPP, because they are distorted by differences in the cost of non-tradables such as rents.
Burgers cannot easily be traded across borders, and prices are distorted by big differences in the cost of non-traded local inputs such as rent and workers' wages.
The new method, called the Supplemental Poverty Measure, counts all those factors and adjusts for differences in the cost of living, which the official measure ignores.
Local prices may be distorted by trade barriers on beef, sales taxes, or big differences in the cost of property rents.
On the other side, the poverty threshold has not been adjusted over the years to reflect the rising relative costs of housing and medical care and does not take account of large regional differences in the cost of living.
