The Money Metric, Price and Quantity Aggregation and Welfare Measurement
AbstractThe paper presents a general theory of the aggregation of prices and quantities that unifies the field and relates topics that in the past have been treated separately and unsatisfactorily, or not at all. The theory does without the common but unrealistic assumptions of homotheticity, or representative agents and is valid with or without an explicit utility maximization assumption. Two different derivations are given, one in continuous time, using Divisia integrals, and one employing more traditional discrete arguments. The unifying concept is the money metric, which is interpreted as a partial welfare indicator, rather than as a comprehensive welfare measure. On this basis, a consistent set of chained price and quantity indexes for a set of additive time series, such as those in the national income and product accounts, is derived. All variants of the theory lead to TÃ¶rnqvist indexes defined on the appropriate data set. A numerical example confirms that in the non-homothetic case, these indexes are superior both to Fisherâ€™s â€˜idealâ€™ index and to the consumer surplus approximation.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.
Volume (Year): contributions.3 (2003)
Issue (Month): 1 ()
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Web page: http://www.degruyter.com
Find related papers by JEL classification:
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
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- Hillinger, Claude, 2008.
"Measuring Real Value and Inflation,"
Economics - The Open-Access, Open-Assessment E-Journal,
Kiel Institute for the World Economy, vol. 2(20), pages 1-26.
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