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Information, Multiprice Search, and Cost-of-Living Index Theory

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  • Anglin, Paul M
  • Baye, Michael R

Abstract

This paper derives the cost-of-living index of an individual who faces imperfect and costly information about prices. Traditional cost-of-living in dexes assume that the consumer passively accepts prices as given. The authors derive a multiprice search model in which the consumer choos es the search strategy that minimizes the expected cost of buying a g iven level of utility. In contrast to existing search models, the mod el allows the consumer to change the allocation of expenditures among goods as information about prices changes and enables them to constr uct a cost-of-living index for an agent who searches across distribut ions of offer prices. Unlike traditional cost-of-living measures that ignore search behavior, the searcher's cost-of-living index depends on search costs. Copyright 1987 by University of Chicago Press.

Suggested Citation

  • Anglin, Paul M & Baye, Michael R, 1987. "Information, Multiprice Search, and Cost-of-Living Index Theory," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1179-1195, December.
    • Handle: RePEc:ucp:jpolec:v:95:y:1987:i:6:p:1179-95
    DOI: 10.1086/261510
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    Cited by:

    1. Muller, Christophe, 2002. "Prices and living standards: evidence for Rwanda," Journal of Development Economics, Elsevier, vol. 68(1), pages 187-203, June.
    2. Gatti, J. Rupert J., 1999. "Multi-Commodity Consumer Search," Journal of Economic Theory, Elsevier, vol. 86(2), pages 219-244, June.
    3. Marshall Reinsdorf & Jack E. Triplett, 2009. "A Review of Reviews: Ninety Years of Professional Thinking About the Consumer Price Index," NBER Chapters, in: Price Index Concepts and Measurement, pages 17-83, National Bureau of Economic Research, Inc.
    4. Christophe Muller, 2022. "Poverty Measurement under Income and Price Dispersions," AMSE Working Papers 2204, Aix-Marseille School of Economics, France.
    5. Marshall Reinsdorf, 1993. "The Effect of Outlet Price Differentials on the US Consumer Price Index," NBER Chapters, in: Price Measurements and Their Uses, pages 227-258, National Bureau of Economic Research, Inc.
    6. Christophe Muller, 2022. "Poverty Measurement under Income and Price Dispersions," Working Papers hal-03612841, HAL.
    7. W. Erwin Diewert, 1995. "Price and Volume Measures in the System of National Accounts," NBER Working Papers 5103, National Bureau of Economic Research, Inc.
    8. Marshall B. Reinsdorf & Brent R. Moulton, 1996. "The Construction of Basic Components of Cost-of-Living Indexes," NBER Chapters, in: The Economics of New Goods, pages 397-436, National Bureau of Economic Research, Inc.
    9. Richards, Timothy J. & Hamilton, Stephen F. & Allender, William, 2016. "Search and price dispersion in online grocery markets," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 255-281.

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