Price Index Aggregation: Plutocratic Weights, Democratic Weights, and Value Judgments

Frank M. Fisher

Annals of Economics and Statistics, 2005, issue 79-80, 749-757

Abstract: The question of how to aggregate individual cost-of-living indexes is not a simple one. The recent National Research Council Panel's report (Schultze et al. [2002]) discusses two methods. The first, the "plutocratic" method uses expenditure weights in the aggregation; the second, the "democratic" method weights each household equally. This paper argues that the choice of weights depends on value judgments about income distribution. It is shown that, save in very special circumstances, neither the plutocratic nor the democratic method is satisfactory.

Date: 2005
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