A General Theory of Price and Quantity Aggregation and Welfare Measurement
The 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 Törnqvist indexes defined on the appropriate data set. A numerical example confirms that in the non-homothetic case, these indexes are superior both to Fisher’s ‘ideal’ index and to the consumer surplus approximation.
|Date of creation:||2002|
|Date of revision:|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
More information through EDIRC
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.:
- McKenzie,George W., 1983. "Measuring Economic Welfare," Cambridge Books, Cambridge University Press, number 9780521248624, November.
- Daniel T. Slesnick, 1998. "Empirical Approaches to the Measurement of Welfare," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2108-2165, December.
- Claude Hillinger, 2001. "Money Metric, Consumer Surplus and Welfare Measurement," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 177-193, 05.
- Diewert, W E, 1992. "Exact and Superlative Welfare Change Indicators," Economic Inquiry, Western Economic Association International, vol. 30(4), pages 562-82, October.
- Jorgenson, Dale W, 1990. "Aggregate Consumer Behavior and the Measurement of Social Welfare," Econometrica, Econometric Society, vol. 58(5), pages 1007-40, September.
- Samuelson, Paul A, 1974. "Complementarity-An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1255-89, December.
- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
- Diewert, W E, 1976. "Harberger's Welfare Indicator and Revealed Preference Theory," American Economic Review, American Economic Association, vol. 66(1), pages 143-52, March.
- Apps, Patricia F & Rees, Ray, 1997.
"Collective Labor Supply and Household Production,"
Journal of Political Economy,
University of Chicago Press, vol. 105(1), pages 178-90, February.
- Chiuri, M C & Simmons, P J, 1997. "Universal Decentralisation: A Demand System for Collective and Unitary Models with Household Public Goods," Economic Journal, Royal Economic Society, vol. 107(441), pages 372-89, March.
- Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, vol. 46(4), pages 883-900, July.
- Samuelson, Paul A & Swamy, S, 1974. "Invariant Economic Index Numbers and Canonical Duality: Survey and Synthesis," American Economic Review, American Economic Association, vol. 64(4), pages 566-93, September.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_818. 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: (Klaus Wohlrabe)
If references are entirely missing, you can add them using this form.