On a Quantitative Definition of Affordability

摘要

This paper presents a quantitative definition of affordability adapted from the microeconomic theory of the consumer. Effectiveness replaces consumer utility, lifecycle cost replaces purchase price, and a planning budget replaces that for consumer purchases. The new framework gives rise to a quantitative measure of affordability we call the index of affordability. This index induces an ordering over the affordable alternatives: the higher the index the more likely an alternative will remain affordable as cost increases or the budget diminishes. This leads naturally to development of a quantitative measure of affordability risk. Viewing the index of affordability as a random variable dependent on uncertain future costs, budgets, and effectiveness measures permits a simulation approach the gives rise to an ordering over the affordable alternatives in terms of their distribution functions.