THREE ESSAYS ON PRICE INDICES, PRICE DISPERSION, AND CONSUMERS' WELFARE
Abstract
The first of the three parts of this thesis provides a theoretical and empirical examination of the effects of price dispersion on the construction and interpretation of functional price indices. It is shown that the use of the mean price of a commodity as a "representative price" leads to a stochastic bias in the reported value of the index. Empirical results indicate that, although both the substitution and stochastic biases are relatively small, the stochastic bias is of a magnitude comparable to the more widely recognized substitution bias. In Part Two the properties of the Konus and marginal cost of living indices are compared. It is shown that the marginal cost of living index, in the presence of inferior goods, may be decreasing in current prices. The magnitude of the two indices are compared, and necessary and sufficient conditions for the two indices to be equivalent measures of price change are established. It is also shown that the necessary and sufficient conditions for the marginal index to be independent of base utility are weaker than those for the Konus index to be independent of base utility. Finally, it is pointed out that, under quasi-homotheticity, the marginal index serves as a bound for the values of the Konus obtained from alternative base utility values. Empirical comparisons of the Konus and marginal indices are also presented, and the theoretical results are used to bound the base utility ambiguity of the Konus index. Part Three analyzes the effects of quasi-stabilizing prices and incomes on the welfare of a group of heterogeneous consumers. A unanimous consent criterion is adopted, and multivariate stochastic dominance rules are utilized to derive the necessary and sufficient conditions for a group of heterogeneous consumers to prefer quasi-stabilization policy. An "impossibility theorem" is also presented which shows that feasible price stability is never preferred by all consumers.
Degree
Ph.D.
Subject Area
Business community
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