On the theory and practice of proper indexes

The paper outlines O’Donnell’s axiomatic approach to index number theory that he applies to the measurement of output, input and productivity. His concept of a Proper Index is related to other approaches to index number theory in the producer context. The alternative approaches that are discussed are basket approaches, stochastic approaches, axiomatic approaches and economic approaches. O’Donnell’s approach and other approaches are illustrated by the computation of various indexes using US consumption data for the years 2000–2025. The paper also discusses two important problems that compilers of producer price and quantity indexes face: the lack of matching problem and the extension problem. An alternative axiomatic framework to O’Donnell’s axioms is discussed.