Public Resistance to Indexation: A Puzzle

This study addresses the question: Why isn't indexation practiced more widely around the world? Indexation is assured by institutions and contract provisions that protect people against the effects of unanticipated inflation, as measured by a consumer price index or similar index. Examples of institutions that promote indexation are cost of living allowances, escalator clauses, or inflation-protected bonds. Subjects were interviewed to understand their lack of interest in indexation. Questionnaire surveys were administered in the United States and in Turkey (where inflation rates are much higher and where there is still little indexation) in 1996. Many causes of this lack of interest in indexation are studied, prominent among them being lack of appreciation of inflation uncertainty, lack of trust in the government, and beliefs that high inflation, if it were to come, would coincide with times of economic and political instability.