AGGREGATE PRICE INDEXES, NEW GOODS, AND GENERICS

This paper examines the appropriate treatment in the cost-of-living in dex of the appearance of new varieties of old goods. Existing theory h ere applies to individual households. Thus, we first show in what sens e Laspeyres and Paasche indices for groups of households can be consid ered approximations to theoretically desirable group indices and then go on to the case of new goods. We apply our results to the case of th e introduction of generics in pharmaceuticals and show that proper tre atment can make a considerable difference.