Index Numbers and Revealed Preference Rankings

IFN Working Paper No. 1308

33 Pages Posted: 30 Dec 2019

See all articles by Per Hjertstrand

Per Hjertstrand

Research Institute of Industrial Economics (IFN)

James L. Swofford

University of South Alabama

Gerald Whitney

University of New Orleans

Date Written: November 28, 2019

Abstract

For previously identified weakly separable blockings of goods and assets, we construct aggregates using four superlative index numbers, the Fisher, Sato-Vartia, Törnqvist and Walsh, two non-superlative indexes, the Laspeyres and Paasche and the atheoretical simple summation. We conduct several tests to examine how well each of these aggregates “fit” the data. These tests are how close the aggregates come to solving the revealed preference conditions for weak separability, how often each aggregate gets the direction of change correct and how well the aggregates mimic the preference ranking from revealed preference tests. We find that, as the number of goods and assets being aggregated increases, the problems with simple summation manifest.

Keywords: Superlative index numbers; Aggregation; Preference orderings; Weak separability

JEL Classification: C43

Suggested Citation

Hjertstrand, Per and Swofford, James L. and Whitney, Gerald, Index Numbers and Revealed Preference Rankings (November 28, 2019). IFN Working Paper No. 1308 , Available at SSRN: https://ssrn.com/abstract=3500528 or http://dx.doi.org/10.2139/ssrn.3500528

Per Hjertstrand (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

James L. Swofford

University of South Alabama ( email )

307 University Blvd
Mobile, AL 36688
United States

Gerald Whitney

University of New Orleans ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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