Econometrica: Jan 1977, Volume 45, Issue 1

A Note on New Goods and Quality Changes in the True Cost of Living Index in View of Lancaster's Model of Consumer Behavior<163:ANONGA>2.0.CO;2-G
p. 163-172

N. Anders Klevmarken

Based on Lancaster's model of consumer behavior, Konus' cost of living index is generalized to incorporate quality changes and new commodities. Since it is demonstrated that Laspeyres' index is an upper bound on the true index only with restrictive assumptions about the utility function, another index which is always an upper bound is also suggested.

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