Jessie Handbury, David Weinstein, 07 November 2014

It’s a common perception that big cities are expensive. This column argues that most of the variation in prices across cities can be attributed to flaws in the conventional indexes. One problem with the standard methodology is that it compares prices of similar but not identical goods. A second issue is that most price indexes do not adjust for the availability of goods across locations. Correcting for these two problems, the authors find that grocery prices are actually lower in large cities. 

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