The inadequacy of cost of living indices based on subjective preferences: an ethical and methodological critique

In this paper we argue that there is scant justification for replacing the traditional fixed-basket Laspeyres price index with so called 'true cost of living indices'. We begin with a discussion of the possible explanations for some empirical results for inflation found for different socia...

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Bibliographic Details
Published inInternational review of applied economics Vol. 22; no. 6; pp. 745 - 754
Main Authors Murphy, Eithne, Garvey, Eoghan
Format Journal Article
LanguageEnglish
Published New York Routledge 01.11.2008
Taylor and Francis Journals
Taylor & Francis Ltd
SeriesInternational Review of Applied Economics
Subjects
Cost of living
Cost of living indexes
cost of living indices
Economic theory
Ethics
Inflation
Ireland
Methodology
Price index
Social classes
Social stratification
Studies
Welfare
Ireland
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Summary:In this paper we argue that there is scant justification for replacing the traditional fixed-basket Laspeyres price index with so called 'true cost of living indices'. We begin with a discussion of the possible explanations for some empirical results for inflation found for different social groups in Ireland in the late 1990s. Our arguments concerning appropriate inflation indices are primarily ethical and are not dependent on these results being interpreted in a non-neoclassical vein. They do however gain extra force if one accepts non-neoclassical explanations for the empirical results. We go on to draw conclusions as to how best to measure the welfare effects of changes in the price of goods. This links in to the broader debate regarding objective versus subjective measures of welfare.
Bibliography:ObjectType-Article-2
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ISSN:0269-2171
1465-3486
DOI:10.1080/02692170802407734