The social cost of living index

Household cost of living indexes reflect household preferences; analogous indexes for groups of households require a corresponding concept of group preferences. In this paper I investigate the ‘social cost of living index’, a group index based on the Bergson-Samuelson social welfare function. I first define the index and examine its properties under the assumption that the investigator constructing it expresses his distributional judgments in an explicit Bergson- Samuelson social welfare function; I then examine the ‘maximizing society’ and the ‘independent society’, two cases in which the index can be constructed from the information contained in the market demand functions. In these two cases a Laspeyres index (i.e. the fixed weight index based on the reference consumption pattern) is an upper bound on the exact social cost of living index. In general, however, the assumptions required to place bounds on the social cost of living index are much more likely to be satisfied than those required to place analogous bounds on a household's cost of living index.