not guarantee that divergent price behavior is always likely to be so short-lived. We suspect it would not be very expensive to produce quintile indexes on a regular basis—annually, if not monthly—which might prove to be very useful for public policy purposes and would alert us when significant differences reappear. And while the overall quasi-democratic CPI did not depart in any substantial way from the regular plutocratic CPI, the same process that produces the quintile indexes would provide an ongoing quasi-democratic index that would indicate if differences did emerge.
There are uses for the CPI or its components in which plutocratic weighting is called for—the component indexes of the CPI are used in deflating current dollar consumer expenditures as part of producing measures of real gross domestic product (GDP). And it is probable that a plutocratic index would come closer than a democratic one to the weights appropriate for indexing the tax system. But for most purposes a democratic index would be preferable. For analysis of economic welfare—e.g., measuring changes in real median incomes—a democratic index would clearly be superior. And that is equally true for the index used to determine cost-of-living allowances in social security and other public transfer programs. Rough calculations cited by Deaton (1998) suggest that the household “represented” by the plutocratic CPI is around the 75th percentile of the income distribution. And it is hard to imagine that anyone would deliberately make decisions about public pensions by tracking households at the 75th percentile of the income distribution.
The fact that, in the past, indexes weighted democratically at the upper level have not tended, over any substantial time period, to move differently from the plutocratic CPI is no guarantee that the future will always produce the same result. The Kokoski article shows that households at the opposite ends of the income spectrum have, at least over short time periods, experienced significantly different rates of inflation simply due to the different allocations of their budgets. On the assumption that, aside from the initial set-up expenses, the costs of maintaining the production of such indexes would not be large, continuing production of such supplemental indexes seems a worthwhile task.
Households differ from one another in their consumption patterns and shopping behavior and often pay different prices for the same goods. Part of this heterogeneity is associated with differences in household economic and demographic characteristics and in their geographic location. This fact gives rise to two kinds of issues: (1) For adjusting social security payments and the tax system or for measuring changes in real income, when can data for the whole population be