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Energy Efficiency, User-Cost Change, and the Measurement of Durable Goods Prices

In: The U.S. National Income and Product Accounts: Selected Topics

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  • Robert J. Gordon

Abstract

This paper develops the theory of price measurement when quality change is "nonproportional", yielding increases in the user value of a given product in a different proportion than the increase in production cost associated with the quality improvement. The theoretical section demonstrates that "nonproportional" quality change is treated consistently by properly defined input and output price indexes; that both types of indexes should he based on quality adjustments that use the criterion of user value rather than production cost; and that if improvements in energy efficiency are embodied in a good by its manufacturer, the prices of new models should be adjusted for the user value of these cost savings. The proposed approach is applied in a case study of the commercial aircraft industry. In contrast to the official price index for aircraft that rises at a 2.5 percent annual rate between 1957 and 1972,a new index is developed that declines at a 7.1 percent annual rate over the same period. The new index implies that output and productivity in the aircraft industry grew much faster than previously believed between 1957 and1972,while total factor productivity in the airline industry grew much less rapidly. The proposed quality adjustments for individual aircraft types are corroborated by price ratios observed in the used aircraft market.

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This chapter was published in:

  • Murray F. Foss, 1982. "The U.S. National Income and Product Accounts: Selected Topics," NBER Books, National Bureau of Economic Research, Inc, number foss82-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7786.

    Handle: RePEc:nbr:nberch:7786

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    1. Edward F. Denison, 1957. "Theoretical Aspects of Quality Change, Capital Consumption, and Net Capital Formation," NBER Chapters, in: Problems of Capital Formation: Concepts, Measurement, and Controlling Factors, pages 215-284 National Bureau of Economic Research, Inc.
    2. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-68, August.
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    Cited by:
    1. Zvi Griliches, 1988. "Hedonic Price Indexes and the Measurement of Capital and Productivity: Some Historical Reflections," NBER Working Papers 2634, National Bureau of Economic Research, Inc.
    2. Bulow, Jeremy I & Summers, Lawrence H, 1984. "The Taxation of Risky Assets," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 20-39, February.
    3. Robert S. Chirinko, 1985. "The Ineffectiveness of Effective Tax Rates on Business Investment," NBER Working Papers 1704, National Bureau of Economic Research, Inc.

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