stricting the COLI to cover only the universe of private goods and services, as the BLS does and the panel recommends, requires that it be a “conditional” COLI; that is, it should measure changes in consumers’ costs of living on the assumption of stability in conditions—such as the weather or the quality of publicly provided goods—that are outside the universe of private goods. But the choice of exactly which outside conditions should be held constant in the conditional COLI is sometimes controversial and cannot itself be derived from the theory underlying the COLI. And the fact that consumers’ demands for private goods and services often do change in response to outside conditions provides another reason why there is a range of circumstances under which a CPI constructed on cost-of-living principles can only approximate a COLI.

If asked to assess the relative merits of the two conceptual approaches as a guide for construction of the CPI, various members of the panel would strike the balance differently. All panel members find it difficult to think about the definition of goods and about quality change without considering what it is that consumers value, and agree that it is impossible to think about substitution behavior without the concept of a constant standard of living which allows price changes to be converted into a monetary equivalent. For all these issues, especially the last, the cost-of-living framework is central. However, some panel members are skeptical about our ability to define a constant standard of living in an economy in which the nature of goods and services is constantly changing. They point out that the conceptual framework underlying the COLI is not always well defined in the presence of quality change and, therefore, they conclude it provides, at best, a limited advantage over the COGI approach in handling this most difficult of issues. They are also concerned about the BLS adopting an approach that differs from that of many statistical offices around the world.

Despite these differences, all panel members agree that the COGI and the conditional COLI that the panel recommends share many common aspects. We also concur that neither conceptual approach, viewed in its pure form, can provide the single guide to index construction but that each can make a contribution toward dealing with the various problems that arise in designing the CPI. Taking a pragmatic approach, the panel found that it could come, sometimes by different routes, to unanimous agreement on all of the specific recommendations in this report. But in its inability to achieve unanimity behind a recommendation that the cost-of-living framework be the sole appropriate basis for construction of the CPI, our panel differs from the Stigler committee and the Boskin commission.

THE SCOPE OR DOMAIN OF THE INDEX

For the reasons set forth in Chapters 2 and 3 of this report, we arrived at two general conclusions, largely about the conceptual basis for price and cost-of-living indexes, which serve to guide our more detailed conclusions and recommendations that appear later in the report.



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