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The inadequacy of cost of living indices based on subjective preferences: an ethical and methodological critique

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  • Eithne Murphy
  • Eoghan Garvey

Abstract

In this paper we argue that there is scant justification for replacing the traditional fixed-basket Laspeyres price index with so called 'true cost of living indices'. We begin with a discussion of the possible explanations for some empirical results for inflation found for different social groups in Ireland in the late 1990s. Our arguments concerning appropriate inflation indices are primarily ethical and are not dependent on these results being interpreted in a non-neoclassical vein. They do however gain extra force if one accepts non-neoclassical explanations for the empirical results. We go on to draw conclusions as to how best to measure the welfare effects of changes in the price of goods. This links in to the broader debate regarding objective versus subjective measures of welfare.

Suggested Citation

  • Eithne Murphy & Eoghan Garvey, 2008. "The inadequacy of cost of living indices based on subjective preferences: an ethical and methodological critique," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(6), pages 745-754.
    • Handle: RePEc:taf:irapec:v:22:y:2008:i:6:p:745-754
    DOI: 10.1080/02692170802407734
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    Cited by:

    1. Jason Loughrey & Cathal O’Donoghue, 2012. "The Welfare Impact of Price Changes on Household Welfare and Inequality 1999-2011," The Economic and Social Review, Economic and Social Studies, vol. 43(1), pages 31-66.
    2. Loughrey, Jason & O'Donoghue, Cathal, 2011. "The Welfare Impact of Price Changes on Household Welfare and Inequality 1999-2010," IZA Discussion Papers 5717, Institute of Labor Economics (IZA).

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    Keywords

    cost of living indices; welfare;

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