A Spatial Cost of Living Index for Colombia using a Microeconomic Approach and Censored Data
AbstractThis paper describes a methodology to calculate a spatial cost of living index using Colombian data for 2006 that takes into consideration the microeconomic behavior of households. Using the Almost Ideal Demand System and recovering the expenditure functions for the 23 main Colombian cities, the index proposed is compared to the traditional methodologies used to calculate the regional basket of goods in the country and to an alternative methodology proposed by Romero (2005). This comparison suggests that when the substitution effects are not considered, and the same basket of goods is evaluated in every city, the index is biased, and this bias increases when the diference between cities increases. For reducing the bias, we use a microeconomic approach that keeps the households' level of utility constant and allows substitution among diferent baskets of goods. According to our calculations, Bogota is still the most expensive city in the country followed by Armenia, Cali, Bucaramanga and Ibague.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 30580.
Date of creation: 29 Apr 2011
Date of revision:
Spatial Price Index; Almost Ideal Demand System;
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
- C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-14 (All new papers)
- NEP-GEO-2011-05-14 (Economic Geography)
- NEP-URE-2011-05-14 (Urban & Real Estate Economics)
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