play, and what priorities should it give to research devoted to developing experimental measures of the contribution to national output and welfare associated with changes in outside conditions and government programs?

With a very broad definition of what should be included in its domain, a COLI would be adjusted up or down to take account of the positive or negative effects on consumer well-being arising from a wide range of sources outside the marketplace that have not traditionally been considered relevant for inclusion in the CPI. These include, among other elements, the quality of the air, water, and other environmental amenities; the presence or absence of congestion on roads and in neighborhoods; changes in perceptions about personal security associated with trends in the crime rate; the effects of significant climate changes; and increases in longevity arising from broad environmental factors (aside from those associated with specific medical procedures).5 As noted above, the analytic techniques and statistical tools to measure most of these kinds of effects do not currently exist or, if they have been tried, they are still controversial and speculative.

Public Goods, Publicly Provided Private Goods, and Taxes

The CPI is now based on prices charged for private goods, i.e., goods that are sold to individual households. A few of these goods (e.g., tuition at public colleges, bus fares on city-owned buses, or entrance fees to public parks) are private goods produced by government and sold on an individual basis. The CPI does not include public goods (e.g., national defense, clean air) that are made available freely rather than through individual sales.6 And yet the increased or decreased availability of those goods does affect living standards. Should the value of some or all types of these public goods be included in the CPI, with the taxes to pay for them treated analogously to prices? When goods made available by government are classified in terms of how similar or different they are from the kinds of private goods currently priced in the CPI, they range across a wide spectrum. At the “nearly private” end are things like the airline ticket taxes charged by the government and used to finance flight control, safety, and other operations of the Federal Aviation Administration. The connection between gasoline taxes and highway construction is somewhat looser, but the taxes do bear some relationship

5  

Increases in longevity associated with specific improvements in medical procedures (e.g., heart bypass surgery) might conceivably be treated as a quality change and reflected as a downward adjustment in the price of medical services. We consider these kinds of situations under “quality change.”

6  

Public goods are not defined in terms of who sells them—public or private entities—but by their nature. A public good is one that has two characteristics: if the good is available to one person it is available to all, and one person’s consumption of the good does not reduce the amount available to others. Public goods, unlike private ones, cannot be sold to individuals.



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