Abstract
Robert McClelland (1996) "Price
Dispersion and Cost-of-Living Indexes."
Standard Work on cost-of-living indexes uses nonstochastic
price. Baye (1985) and Reinsdorf (1994a), however, describe
Konus indexes that allow prices to be random. However, when
the utility level is determined by an indirect utility
function, these indexes may violate an identity axiom and
allow utility to increase when the cost-of-living index
increases. As an alternative, a new Konus index is described
that does not violate the above-mentioned identity axiom and
ranks price regimes in the opposite order as indirect utility
functions. In addition, it provides a natural way to
introduce risk aversion into cost-of-living indexes.
Last Modified Date: July 19, 2008
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