A Reconsideration of Hedonic Price Indices with an Application to PC's / Ariel Pakes.

Format:

Book

Author/Creator:

Pakes, Ariel.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8715.

NBER working paper series no. w8715

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

This paper provides a justification for hedonic price indices and details the properties of hedonic price functions. The analysis is done in a market setting in which a finite number of goods, each defined by its characteristics, interact. We note that proper hedonic indices can be constructed from the same data currently used to construct matched model indices. Since the matched model index does not incorporate price changes for goods which exit, and the goods that exited tend to be those goods whose prices fall, the matched model index has a selection problem which biases it upwards. The hedonic index does not have this problem. We illustrate with a new study of price indices for PC's. The hedonic index shows steep price declines in every year. On average, the matched model indices indicate no price fall at all and one commonly used matched model index is negatively correlated with the hedonic. We also construct and compare alternative price indices used either in research or by the federal statistical agencies. Of these the one that seems to work well is a Pasche style hedonic. Its advantage is that since it does not require computation of the current period's hedonic function, it is easier to use when monthly timetables need to be met.

Notes:

Print version record

January 2002.