Abstract
This paper defines the perfect price index as the price index which, if used for wage indexation, maximizes a worker's expected utility for given present value of the payment from a firm, and it shows how the perfect price index depends on the attributes of the worker's utility function and on the relative-price seasonality. Since in practice labor contracts rely on an official price index published in either unadjusted or deseasonalized form, the paper also examines when either form of the official price index provides the belter basis for wage indexation, and it shows how this is revealed by the design of the perfect price index.
| Original language | English |
|---|---|
| Pages (from-to) | 1145-1167 |
| Number of pages | 23 |
| Journal | European Economic Review |
| Volume | 30 |
| Issue number | 6 |
| DOIs | |
| State | Published - 1 Jan 1986 |
| Externally published | Yes |
ASJC Scopus subject areas
- Finance
- Economics and Econometrics