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Bias Due to Input Source Substitutions: Can It Be Measured?

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Author Info

  • Diewert, Erwin
  • Nakamura, Alice O.

Abstract

Once a business opts to purchase rather than produce an input, it can also change the source from which the product is procured. Producer price index programs face problems in dealing with price changes associated with sourcing changes. We present measures for price index bias due to sourcing substitutions. We begin with highly simplified cases to convey the rationale for our approach, and then show how the measures could be generalized. We also explain related aspects of the industry accounts. This material makes it clear that the growth of outsourcing and the related increases in domestic and foreign sourcing substitutions pose important challenges for statistics agencies.

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File URL: http://microeconomics.ca/erwin_diewert/dp1006.pdf
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Bibliographic Info

Paper provided by Vancouver School of Economics in its series Economics working papers with number erwin_diewert-2010-15.

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Length: 21 pages
Date of creation: 12 May 2010
Date of revision: 13 Jul 2010
Handle: RePEc:ubc:bricol:erwin_diewert-2010-15

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Web page: http://www.economics.ubc.ca/

Related research

Keywords: Offshoring; outsourcing; consumer price indexes; producer price indexes; intermediate input price indexes; bias in price indexes; Fisher index; total;

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Cited by:
  1. FUKAO Kyoji & ARAI Sonoe, 2013. "Offshoring Bias in Japan's Manufacturing Sector," Discussion papers 13002, Research Institute of Economy, Trade and Industry (RIETI).

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