Abstract
Given that a generalized Fechner-Thurstone (GFT) direct utility function and a neoclassical direct utility function yield exactly the same system of demand functions, then for which combinations of (a) regions of the domain of neoclassical parameters and (b) price and total expenditure regimes, do the alternative true cost-of-living indexes (TCLI's) and their sensitivities to changes in casual factors differ significantly? Practical neoclassical alternatives to the GFT-based non-parametric TCLI's are limited to parametric TCLI's based on the class of implicit utility models discussed by Barnett. This paper describes the design and results of a simulation experiment which generated alternative TCLI's under different parameter specifications. Focus of appraisal is on specifications which produced realistic demand elasticities and large deviations between TCLI's.
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