Chapter 8 Cost of Living Indexes and Exact Index Numbers

Walter Diewert

A chapter in Quantifying Consumer Preferences, 2009, pp 207-245 from Emerald Group Publishing Limited

Abstract: The chapter reviews and extends the theory of exact and superlative index numbers. Exact index numbers are empirical index number formula that are equal to an underlying theoretical index, provided that the consumer has preferences that can be represented by certain functional forms. These exact indexes can be used to measure changes in a consumer's cost of living or welfare. Two cases are considered: the case of homothetic preferences and the case of nonhomothetic preferences. In the homothetic case, exact index numbers are obtained for square root quadratic preferences, quadratic mean of order r preferences, and normalized quadratic preferences. In the nonhomothetic case, exact indexes are obtained for various translog preferences.

Keywords: exact index numbers; superlative index numbers; flexible functional forms; Fisher ideal index; normalized quadratic preferences; mean of order r indexes; homothetic preferences; nonhomothetic preferences; cost of living indexes; the measurement of welfare change; translog functional form; duality theory; Allen quantity index (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ceazzz:s0573-8555(2009)0000288011

DOI: 10.1108/S0573-8555(2009)0000288011

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