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Variety-robust axiomatic indices

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  • Straathof, Bas

    (MERIT)

Abstract

The price and quantity indices proposed in this paper exactly and unconditionally pass the product test, E = PQ. Because the indices are measured over single sets of products they can be used for the comparison of sets that do not contain the same types of products. Changes in product variety do not lead to biases in these indices. For homothetic functions, the indices can be used to decompose changes in productivity and the cost of living. Shannon’s (1948) entropy is shown to have properties that make it suitable as an index of product variety. This index of product variety is strongly related to the presented price and quantity indices.

Suggested Citation

  • Straathof, Bas, 2003. "Variety-robust axiomatic indices," Research Memorandum 028, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:umamer:2003028
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    File URL: https://www.merit.unu.edu/publications/rmpdf/2003/rm2003-028.pdf
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    References listed on IDEAS

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    1. Feenstra, Robert C & Markusen, James R & Zeile, William, 1992. "Accounting for Growth with New Inputs: Theory and Evidence," American Economic Review, American Economic Association, vol. 82(2), pages 415-421, May.
    2. Klaus Nehring & Clemens Puppe, 2002. "A Theory of Diversity," Econometrica, Econometric Society, vol. 70(3), pages 1155-1198, May.
    3. Alexander, Peter J., 1997. "Product variety and market structure: A new measure and a simple test," Journal of Economic Behavior & Organization, Elsevier, vol. 32(2), pages 207-214, February.
    4. Feenstra, Robert C. & Madani, Dorsati & Yang, Tzu-Han & Liang, Chi-Yuan, 1999. "Testing endogenous growth in South Korea and Taiwan," Journal of Development Economics, Elsevier, vol. 60(2), pages 317-341, December.
    5. Hanoch, Giora, 1971. "CRESH Production Functions," Econometrica, Econometric Society, vol. 39(5), pages 695-712, September.
    6. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-228, May.
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    Cited by:

    1. Straathof, Bas, 2003. "A note on Shannon’s entropy as an index of product variety," Research Memorandum 031, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).

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