basket might include more winter clothing or home heating fuel in colder than in warmer climate areas, or the market basket might give a higher weight to vehicle purchase and maintenance costs in rural and other areas that lack public transportation. Such an approach seems to make intuitive sense; however, its implementation quickly leads to a host of difficult and hard-to-defend judgements. For example, higher air conditioning costs in warmer areas may offset lower heating costs; or, car owners in rural areas may get better gasoline mileage that lowers their vehicle use costs.

Even harder to develop and justify are the use of different market baskets that reflect consumption differences across regions that are not explained by such factors as climate differences. For example, on the basis of observed interregional differences in food consumption patterns, the BLS Family Budgets Program gave higher weight to less expensive foods—such as lard and pork—and lower weights to more expensive foods—such as butter and beef—in the budgets for areas in the South relative to the North (see Expert Committee on Family Budget Revisions, 1980; Sherwood, 1975, 1977). Although people in different regions may have different tastes for foods (or other items), it seems dubious to thereby conclude that such differences should be reflected in the market basket for pricing. To do so is to assume that Northerners "require" a more expensive diet than Southerners, or, alternatively, to assume that consumers would be equally satisfied with any one of the market baskets that is priced. We conclude that the fixed-weight type of interarea price index is preferable to an approach that attempts to specify "needed" or "appropriate" differences in area market baskets.

In this regard, the Expert Committee on Family Budget Revisions (1980:Chap. VII) recommended that a fixed-weight interarea price index be developed for the BLS family budgets and that the market baskets themselves not vary by area. The Committee found that people trade off housing and transportation costs so that the total for these two items does not vary importantly by region or city size; hence, the Committee recommended against interarea differences in the transportation component of the budget. The Committee also argued that regional differences in food consumption should not be used to develop different food budgets by region. Finally, the Committee suggested that, while estimates could be developed of additional expenditures for utilities and clothing needed for different climates, these estimates should not be reflected in the budgets themselves but rather in tabulations by area of the gross income needed to support the standard budget plus any climate allowance plus state and local taxes.7

7  

The Committee initially attempted to estimate area budgets representing equivalent levels of living by trying to find total expenditure levels that were consistent with average spending patterns and with spending enough on food to purchase the USDA Moderate Food Plan; however, the analysis failed to turn up consistent or robust findings.



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