IDEAS home Printed from https://ideas.repec.org/a/spr/sochwe/v52y2019i1d10.1007_s00355-018-1142-4.html
   My bibliography  Save this article

Welfare evaluations and price indices with path dependency problems

Author

Listed:
  • Tsuyoshi Sasaki

    (Osaka City University)

Abstract

In cases where multiple prices change, this paper develops methods for calculating compensating and equivalent variations from the prices, the consumption bundle, and the wealth elasticities of demand for goods. The methods are a natural extension and generalization of the method in Willig (Am Econ Rev 66(4):589–597, 1976), and have the ability to provide second-order approximations of compensating and equivalent variations. In addition, this paper considers two types of price paths: indifference price paths, along which utility levels are kept constant, and iso-price-ratio paths, along which prices change proportionally. Along these two paths, changes in consumer surplus, compensating variation, and equivalent variation are easily calculated, and that there are interesting and precise relationships among them. Furthermore, the methods and relationships above correspond to those of the Laspeyres–Konüs and Paasche–Konüs true cost of living price indices and the Divisia indices.

Suggested Citation

  • Tsuyoshi Sasaki, 2019. "Welfare evaluations and price indices with path dependency problems," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(1), pages 127-159, January.
    • Handle: RePEc:spr:sochwe:v:52:y:2019:i:1:d:10.1007_s00355-018-1142-4
    DOI: 10.1007/s00355-018-1142-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00355-018-1142-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00355-018-1142-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Brent R. Moulton, 1996. "Bias in the Consumer Price Index: What Is the Evidence?," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 159-177, Fall.
    2. Blackorby, Charles & Donaldson, David, 1999. "Market demand curves and Dupuit-Marshall consumers' surpluses: a general equilibrium analysis," Mathematical Social Sciences, Elsevier, vol. 37(2), pages 139-163, March.
    3. Joseph Persky, 1998. "Retrospectives: Price Indexes and General Exchange Values," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 197-205, Winter.
    4. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-597, September.
    5. McKenzie, George W, 1976. "Measuring Gains and Losses," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 641-646, June.
    6. Miyake, Mitsunobu, 2006. "On the applicability of Marshallian partial-equilibrium analysis," Mathematical Social Sciences, Elsevier, vol. 52(2), pages 176-196, September.
    7. Willig, Robert D, 1979. "Consumer's Surplus without Apology: Reply," American Economic Review, American Economic Association, vol. 69(3), pages 469-474, June.
    8. J. R. Hicks, 1941. "The Rehabilitation of Consumers' Surplus," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 8(2), pages 108-116.
    9. Jerry Hausman, 2003. "Sources of Bias and Solutions to Bias in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 23-44, Winter.
    10. Xavier Vives, 1987. "Small Income Effects: A Marshallian Theory of Consumer Surplus and Downward Sloping Demand," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(1), pages 87-103.
    11. Katharine G. Abraham & John S. Greenlees & Brent R. Moulton, 1998. "Working to Improve the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 27-36, Winter.
    12. Charles L. Schultze, 2003. "The Consumer Price Index: Conceptual Issues and Practical Suggestions," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 3-22, Winter.
    13. Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-797, September.
    14. Hayashi, Takashi, 2013. "Smallness of a commodity and partial equilibrium analysis," Journal of Economic Theory, Elsevier, vol. 148(1), pages 279-305.
    15. Robert A. Pollak, 1998. "The Consumer Price Index: A Research Agenda and Three Proposals," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 69-78, Winter.
    16. Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-1025, November.
    17. Angus Deaton & Alan Heston, 2010. "Understanding PPPs and PPP-Based National Accounts," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 1-35, October.
    18. McKenzie, G W & Pearce, I F, 1982. "Welfare Measurement-A Synthesis," American Economic Review, American Economic Association, vol. 72(4), pages 669-682, September.
    19. David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
    20. McKenzie, George W, 1979. "Consumer's Surplus without Apology: Comment," American Economic Review, American Economic Association, vol. 69(3), pages 465-468, June.
    21. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    22. William D. Nordhaus, 1998. "Quality Change in Price Indexes," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 59-68, Winter.
    23. W. Erwin Diewert, 1988. "The Early History of Price Index Research," NBER Working Papers 2713, National Bureau of Economic Research, Inc.
    24. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
    25. Silberberg, Eugene, 1972. "Duality and the Many Consumer's Surpluses," American Economic Review, American Economic Association, vol. 62(5), pages 942-952, December.
    26. W. Erwin Diewert, 1998. "Index Number Issues in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 47-58, Winter.
    27. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
    28. George McKenzie & Ivor Pearce, 1976. "Exact Measures of Welfare and the Cost of Living," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 43(3), pages 465-468.
    29. Bruce, Neil, 1977. "A Note on Consumer's Surplus, the Divisia Index, and the Measurement of Welfare Changes," Econometrica, Econometric Society, vol. 45(4), pages 1033-1038, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ingvild Almås & Timothy K.M. Beatty & Thomas F. Crossley, 2018. "Lost in Translation: What do Engel Curves Tell us about the Cost of Living?," CESifo Working Paper Series 6886, CESifo.
    2. 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.
    3. Shiratsuka, Shigenori, 1999. "Measurement Errors in the Japanese Consumer Price Index," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 69-102, December.
    4. Robert J. Gordon, 2000. "The Boskin Commission Report and its Aftermath," NBER Working Papers 7759, National Bureau of Economic Research, Inc.
    5. Svedberg, Peter & Tilton, John E., 2006. "The real, real price of nonrenewable resources: copper 1870-2000," World Development, Elsevier, vol. 34(3), pages 501-519, March.
    6. Lieu, Pang-Tien & Liang, Jung-Hui & Chen, Jui-Hui, 2008. "Consumer preferences and cost of living in Taiwan," Journal of Asian Economics, Elsevier, vol. 19(3), pages 224-235, June.
    7. Ernst R. Berndt & David M. Cutler & Richard Frank & Zvi Griliches & Joseph P. Newhouse & Jack E. Triplett, 2001. "Price Indexes for Medical Care Goods and Services -- An Overview of Measurement Issues," NBER Chapters, in: Medical Care Output and Productivity, pages 141-200, National Bureau of Economic Research, Inc.
    8. R. A. Somerville, 2004. "Changes in Relative Consumer Prices and the Substitution Bias of the Laspeyres Price Index - Ireland, 1985-2001," The Economic and Social Review, Economic and Social Studies, vol. 35(1), pages 55-82.
    9. Jerry Hausman, 2002. "Sources of Bias and Solutions to Bias in the CPI," NBER Working Papers 9298, National Bureau of Economic Research, Inc.
    10. Shiratsuka, Shigenori, 2021. "Lower-Level Substitution Bias in the Japanese Consumer Price Index: Evidence from Government Micro Data," Discussion Paper Series 722, Institute of Economic Research, Hitotsubashi University.
    11. Meijers, Huub & Hollanders, Hugo, 2003. "Sources of Growth: Measuring the Knowledge Based Economy," Research Memorandum 032, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    12. Robert J. Gordon, 2006. "The Boskin Commission Report: A Retrospective One Decade Later," International Productivity Monitor, Centre for the Study of Living Standards, vol. 12, pages 7-22, Spring.
    13. Gordon, Robert-J, 1999. "The Boskin Commission Report and Its Aftermath," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 41-68, December.
    14. W. Erwin Diewert & Robert C. Feenstra, 2021. "Estimating the Benefits of New Products," NBER Chapters, in: Big Data for Twenty-First-Century Economic Statistics, pages 437-473, National Bureau of Economic Research, Inc.
    15. Patrick Bajari & Zhihao Cen & Victor Chernozhukov & Manoj Manukonda & Jin Wang & Ramon Huerta & Junbo Li & Ling Leng & George Monokroussos & Suhas Vijaykunar & Shan Wan, 2023. "Hedonic prices and quality adjusted price indices powered by AI," CeMMAP working papers 08/23, Institute for Fiscal Studies.
    16. Timothy K.M. Beatty & Erling Røed Larsen & Dag Einar Sommervoll, 2005. "Measuring the Price of Housing Consumption for Owners in the CPI," Discussion Papers 427, Statistics Norway, Research Department.
    17. M. Fase, 2007. "Notes and Communications," De Economist, Springer, vol. 155(2), pages 221-238, June.
    18. Brynjolfsson, Erik & Collis, Avinash & Diewert, W. Erwin & Eggers, Felix & Fox, Kevin J., 2019. "GDP-B: Accounting for the Value of New and Free Goods in the Digital Economy," OSF Preprints sptfu, Center for Open Science.
    19. Gaddis,Isis, 2016. "Prices for poverty analysis in Africa," Policy Research Working Paper Series 7652, The World Bank.
    20. Hoffmann, Johannes, 1998. "Problems of inflation measurement in Germany," Discussion Paper Series 1: Economic Studies 1998,01e, Deutsche Bundesbank.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:sochwe:v:52:y:2019:i:1:d:10.1007_s00355-018-1142-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.