| Summary: | This study explores the use of the Household Production Approach in modeling the trade-offs made by the Inupiat of Alaska's North Slope, as the subsistence sector and income generating opportunities interact. The Almost Ideal Demand Systems (AIDS) approach is used to model the demand functions associated with the goods consumed by the Inupiat. Quality adjusted prices are used to study quality effects (as induced by household characteristics) in aggregated commodity categories. The underlying expenditure function is used to evaluate welfare impacts on households of being farther away from oil development activities, and of being less developed. These characteristics are captured by exogeous variables used in the AIDS model. The results suggest that being located farther away from oil development activities, and being less well-developed may be beneficial to household welfare. Welfare results are categorized according to important household and regional characteristics. These include (a) household income, (b) level of household education, (c) extent of the household's participation in the traditional subsistence sector, (d) household attitudes about various aspects of development, and (e) the percentage non-natives in the population of the village in which the household is located. Sensitivity analyses suggest that a 50% decrease - 35% increase in the prices of housing and energy accompanied by a 173% increase - 35% decrease in the prices of "all other goods" may reverse the welfare conclusions presented in this study. This study does not consider the non-market effects associated with household characteristics included in the AIDS model. Also, the validity of the results are limited by the fact that a linear approximation of the AIDS model is estimated to develop the expenditure function underlying the welfare estimates. The analysis begins to address the issue of whether or not the impacts of oil development on the lifestyles of the Inupiat have been "all good". The research will also provide a case example for other developing economies, where a traditional sector and a developed market economy interact.
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