sion using a method that attempts to estimate changes in cost of living directly from sets of demand curves representing different demographic groups.20 Berndt et al. (1998) looked at actual transactions data involving purchases of pharmaceuticals (antidepressants, calcium channel blockers, and antibiotics). For the period 1990-1996, the authors showed that, relative to younger age groups, the elderly faced rates of price inflation that were slightly higher for antibiotics, slightly lower for antidepressants, and about the same for calcium blockers.


To date, researchers have been unable to compellingly support claims that age- and income-defined population subgroups face significantly different rates of price inflation relative to the general population. On the contrary, during the short period for which reliable data exist, little divergence has been found. However, there is no theoretical rationale to assume that these trends must remain constant over time.

It is important to note that, for the most part, data have been available for research that tracks group indexes differentiated only by item category weights. The Jorgenson and Slesnick article, which estimates separate systems of demand equations for different demographic groups, is an exception. On balance, little is known about exactly how quality and substitution biases in current measures may affect subindexes differently. Thus, it is difficult to assess group-specific cost-of-living trends using currently available experimental index measures.


This approach is unfortunately prohibitive at any detailed level of disaggregation since the number of parameters in the system to be estimated rises proportionately with the square of the number of items in the index. Another method for estimating substitution bias that allows for detailed item disaggregation is used by Garner et al. (1996). The method entails comparing Laspeyres indexes, which assume no substitution bias, with Paasche indexes, which weight item categories using the most recent period’s consumption and probably overstate substitution.

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