Index-number tests and the common-scaling social cost-of-living index
For a change in prices, the common-scaling social cost-of-living index is the equal scaling of every individual's expenditure level needed to restore the level of social welfare to its pre-change value. This index does not, in general, satisfy two standard index-number tests. The reversal test requires the index value for the reverse change to be the reciprocal of the original index. And the circular test requires the product of index values for successive price changes to be equal to the index value for the whole change. We show that both tests are satisfied if and only if the Bergson-Samuelson indirect social-welfare function is homothetic in prices, a condition which does not require individual preferences to be homothetic. If individual preferences are homothetic, however, stronger conditions on the Bergson-Samuelson indirect must be satisfied. Given these results, we ask whether the restrictions are empirically reasonable and find, in the case that individual preferences are not homothetic, that the restrictions make little difference to estimates of the index.
(This abstract was borrowed from another version of this item.)
Volume (Year): 38 (2012)
Issue (Month): 3 (March)
|Contact details of provider:|| Web page: http://link.springer.de/link/service/journals/00355/index.htm|
|Order Information:||Web: http://link.springer.de/orders.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pollak, Robert A., 1981. "The social cost of living index," Journal of Public Economics, Elsevier, vol. 15(3), pages 311-336, June.
- E. T. McPHEE., 1928. "Notes," The Economic Record, The Economic Society of Australia, vol. 4(1), pages 92-95, 05.
- Crossley, Thomas F. & Pendakur, Krishna, 2010. "The Common-Scaling Social Cost-of-Living Index," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(4), pages 523-538.
- Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, vol. 22(1), pages 67-86, February.
- Pollak, Robert A, 1980. "Group Cost-of-Living Indexes," American Economic Review, American Economic Association, vol. 70(2), pages 273-78, May.
- Donaldson, David & Pendakur, Krishna, 2010.
"Index-Number Tests and the Common-Scaling Social Cost-of-Living Index,"
Economics working papers
david_donaldson-2010-4, Vancouver School of Economics, revised 04 Feb 2010.
- David Donaldson & Krishna Pendakur, 2012. "Index-number tests and the common-scaling social cost-of-living index," Social Choice and Welfare, Springer, vol. 38(3), pages 407-429, March.
- Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
- Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931, March.
- repec:cup:cbooks:9780521825511 is not listed on IDEAS
- Pendakur, K., 1999.
"Taking Prices Seriously in the Measurement of Inequality,"
dp99-7, Department of Economics, Simon Fraser University.
- Pendakur, Krishna, 2002. "Taking prices seriously in the measurement of inequality," Journal of Public Economics, Elsevier, vol. 86(1), pages 47-69, October.
- repec:cup:cbooks:9780521532587 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:spr:sochwe:v:38:y:2012:i:3:p:407-429. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F Baum)
If references are entirely missing, you can add them using this form.