The social cost-of-living: Welfare foundations and estimation

Arbeitspapier

We present a new class of social cost-of-living indices and a nonparametric framework for estimating these and other social cost-of-living indices. Common social cost-of-living indices can be understood as aggregator functions of approximations of individual cost-of-living indices. The Consumer Price Index (CPI) is the expenditure-weighted average of first-order approximations of each individual’s cost-of-living index. This is troubling for three reasons. First, it has not been shown to have a welfare economic foundation for the case where agents are heterogeneous (as they clearly are.) Second, it uses an expenditure-weighted average which downweights the experience of poor households relative to rich households. Finally, it uses only first-order approximations of each individual’s cost-of-living index, and thus ignores substitution effects. We propose a “common-scaling” social cost-of-living index, which is defined as the single scaling to everyone’s expenditure which holds social welfare constant across a price change. Our approach has an explicit social welfare foundation and allows us to choose the weights on the costs of rich and poor households. We also give a unique solution for the welfare function for the case where the weights are independent of household expenditure. A first order approximation of our social cost-of-living index nests as special cases commonly used indices such as the CPI.We also provide a nonparametric method for estimating second-order approximations (which account for substitution effects). – Inflation ; Social cost-of-living ; Demand ; Average Derivatives

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: IFS Working Papers ; No. 06/10

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Consumer Economics: Theory ; Consumer Economics: Empirical Analysis ; Equity, Justice, Inequality, and Other Normative Criteria and Measurement ; Price Level; Inflation; Deflation

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Crossley, Thomas F. ; Pendakur, Krishna
• Ereignis: Veröffentlichung
• (wer): Institute for Fiscal Studies (IFS)
• (wo): London
• (wann): 2006

Weitere Informationen

• DOI: doi:10.1920/wp.ifs.2006.0610
• Handle: http://hdl.handle.net/10419/71540
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ