Advanced Search
MyIDEAS: Login to save this paper or follow this series

Hedonic Price Indexes with Unobserved Product Characteristics, and Application to PC's

Contents:

Author Info

  • Benkard, C. Lanier

    (Stanford U)

  • Bajari, Patrick

    (Duke U)

Registered author(s):

    Abstract

    We show that hedonic price indexes may be biased when not all product characteristics are observed. We derive two primary sources of bias. The first is a classical selection problem that arises due to changes over time in the values of unobserved characteristics. The second comes from changes in the implicit prices of unobserved characteristics. Next, we show that the bias can be corrected for under fairly general assumptions using extensions of factor analysis methods. We test our methods empirically using a new comprehensive monthly data set for desktop personal computer systems. For this data we find that the standard hedonic index has a slight upward bias of approximately 1.4% per year. We also find that omitting an important characteristic (CPU benchmark) causes a large bias in the index with standard methods, but that this bias is essentially eliminated when the proposed correction is applied.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://gsbapps.stanford.edu/researchpapers/library/RP1841.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1841.

    as in new window
    Length:
    Date of creation: Sep 2003
    Date of revision:
    Handle: RePEc:ecl:stabus:1841

    Contact details of provider:
    Postal: Stanford University, Stanford, CA 94305-5015
    Phone: (650) 723-2146
    Fax: (650)725-6750
    Email:
    Web page: http://gsbapps.stanford.edu/researchpapers/
    More information through EDIRC

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Rosa L. Matzkin, 2003. "Nonparametric Estimation of Nonadditive Random Functions," Econometrica, Econometric Society, vol. 71(5), pages 1339-1375, 09.
    2. Iain M. Cockburn & Aslam H. Anis, 1998. "Hedonic Analysis of Arthritis Drugs," NBER Working Papers 6574, National Bureau of Economic Research, Inc.
    3. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
    4. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    5. Makoto Ohta, 1983. "Automobile Prices and Quality: Did the Gasoline Price Increase Change Consumer Tastes in the U.S.?," NBER Working Papers 1211, National Bureau of Economic Research, Inc.
    6. Ernst R. Berndt & Zvi Griliches & Neal Rappaport, 1993. "Econometric Estimates of Prices Indexes for Personal Computers in the 1990s," NBER Working Papers 4549, National Bureau of Economic Research, Inc.
    7. Cragg, John G. & Donald, Stephen G., 1997. "Inferring the rank of a matrix," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 223-250.
    8. Aviv Nevo, 2003. "New Products, Quality Changes, and Welfare Measures Computed from Estimated Demand Systems," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 266-275, May.
    9. G. Christian Ehemann & Brent R. Moulton, 2001. "Balancing the GDP Account," BEA Papers 0014, Bureau of Economic Analysis.
    10. Ohta, Makoto & Griliches, Zvi, 1986. "Automobile Prices and Quality: Did the Gasoline Price Increases Change Consumer Tastes in the U.S.?," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(2), pages 187-98, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Robert C. Feenstra & Christopher R. Knittel, 2004. "Re-Assessing the U.S. Quality Adjustment to Computer Prices: The Role of Durability and Changing Software," NBER Working Papers 10857, National Bureau of Economic Research, Inc.
    2. C. Lanier Benkard & Patrick Bajari, 2004. "Demand Estimation with Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach," NBER Working Papers 10278, National Bureau of Economic Research, Inc.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ecl:stabus:1841. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.