Commensurability and Characterization of Normalization Conditions for Cost-of-Living Comparisons under Time-Varying CES Preferences

Naohito Abe and D.S. Prasada Rao ()

Economics Letters, 2024, vol. 244, issue C

Abstract: We show that the normalization conditions for a CES utility function with time-varying preferences (Redding and Weinstein, 2020) must be of weighted-geometric mean form to ensure commensurability of price indexes, and numerically illustrate failure of additive normalization to satisfy commensurability.

Keywords: Cost of living price index; Preference heterogeneity; Commensurability; Normalization (search for similar items in EconPapers)
JEL-codes: C43 E (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524005020

DOI: 10.1016/j.econlet.2024.112018

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