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A Reconsideration of Hedonic Price Indexes with an Application to PC's

  • Ariel Pakes

This paper compares hedonic to matched model indexes. Matched model indexes are averages of the price changes of goods that remain on sampled stores' shelves. Since goods that disappear tend to have falling market values, matched model indexes select from the right tail of price changes. The BLS can construct hedonic indexes that correct for this selection and are justified by standard arguments. In an empirical study of PC's hedonics produce sharp price declines while matched model indexes are near zero. Also, though there are modifications to hedonics that seem desirable, they are not those in current use.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 5 (December)
Pages: 1578-1596

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:5:p:1578-1596
Note: DOI: 10.1257/000282803322655455
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  1. Robert C. Feenstra, 1995. "Exact Hedonic Price Indexes," NBER Working Papers 5061, National Bureau of Economic Research, Inc.
  2. Hulten, Charles R. & Wykoff, Frank C., 1981. "The estimation of economic depreciation using vintage asset prices : An application of the Box-Cox power transformation," Journal of Econometrics, Elsevier, vol. 15(3), pages 367-396, April.
  3. 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.
  4. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
  5. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-94, July.
  6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
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