Measuring Consumer Freedom

This paper axiomatizes an index of consumer freedom of choice and applies it to U.S. consumer data from 2004 to 2017. The Renyi entropy arises naturally as an index of the residual of welfare that remains after accounting for total consumption, the price level, and inequality. We show that this index can be interpreted as the freedom of choice of a representative consumer allocating a dollar of expenditure to goods. When applied to data, we find that the freedom of choice index was stagnant between 2004 and 2009 but substantially increased thereafter. This increase is driven by an increase in the total number of goods consumed as well as a more even distribution of expenditure across goods