Elementary Price Index Number Formulas Differ: Price Dispersion and Product Heterogeneity

Most countries use either the Dutot or Jevons index number formula. These formulas generally give different results; advice on choice of formula matters. Using an approach based on sample estimators, and an illustration based on scanner data, the paper shows how differences in these formulas can be explained by changes in price dispersion and, in turn, by product heterogeneity. Implications for choice of formula are considered