A case of 'No man's land' in economics: price indexes and their applications

Even though price indexes are one of the great inventions of economics, the theory of index numbers and its applications are ignored by the average economist. While in contrast, the theory of economic index numbers has attracted some of the best minds over the years. Therefore, it seems that in economics, theory of price indexes and its applications constitute a case of 'No man's land'. Our purpose is precisely to illustrate its relevance using a three-step strategy. In the first step, we highlight the sense of the so-called 'basic problem of index numbers' by means of evoking its practical origin, namely, the measurement of the purchasing power of an Oxford student. In the second step, we show the significance of the economic approach using as a case the debate about the appropriate conceptual framework for the Consumer Price Index in the USA. In the third step, we display some alternatives to the plutocratic aggregate method, and we establish its relevance using as an example the measurement of the multidimensional poverty in Mexico.