The problem with normalizing preferences that change in a cost-of-living index
Abstract
There are new proposals for prices indexes that attempt to correct for what they consider bias in standard indexes from changes in consumer preferences But these proposals have a fundamental problem that changes in preferences between two periods cannot be identified by data on prices and quantities with only a normalization. This paper shows that the required normalization is not free so that an arbitrary choice of normalization can yield any desired index result. In fact, a normalization using the Sato-Vartia weights yields a Sato-Vartia index, implying exactly zero bias.
Fields of Study & Subjects
Economic and Environmental Valuation
Economics of Agriculture and Food Markets
Wine Industry and Tourism
Publication details
- Journal / source
- Journal of Economic and Social Measurement
- Publisher
- SAGE Publications
- Volume
- 47
- Issue
- 1-2
- Pages
- 5–14
- Publication date
- 1 May 2026
- Language
- EN