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Notes on Unit Value Index Bias

  • Diewert W.Erwin

    ()

    (Department of Economics, University of British Columbia, Vancouver, B.C., Canada, V6T 1Z)

  • Lippe Peter von der

    ()

    (Universität Duisburg-Essen Campus Duisburg, Mercator School of Business, Lotharstrasse 65, LB 146, 47057 Duisburg, Germany)

It is often the case that the value of a number of somewhat similar units (e. g., automobiles of a certain general type) is divided by the number of units in order to form a unit value price and these unit value prices are compared over two periods in order to form a unit value price index. This unit value price index or Drobisch price index can then be compared with other standard index number formulae and the bias in the index can be determined. The present paper presents most of the known results on this bias (and derives some new ones) in a coherent framework using a simple identity from the statistics literature. A related question first considered by Párniczky (1974) is also considered: does disaggregation of a unit value into more homogeneous subgroups reduce the unit value bias? The answer seems to be: probably yes.

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Article provided by De Gruyter in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

Volume (Year): 230 (2010)
Issue (Month): 6 (December)
Pages: 690-708

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Handle: RePEc:jns:jbstat:v:230:y:2010:i:6:p:690-708
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  1. Mick Silver, 2009. "An Index Number Formula Problem; The Aggregation of Broadly Comparable items," IMF Working Papers 09/19, International Monetary Fund.
  2. Mick Silver, 2010. "The Wrongs And Rights Of Unit Value Indices," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages S206-S223, 06.
  3. Timmer, Marcel P., 1996. "On the Reliability of Unit Value Ratios in International Comparisons," GGDC Research Memorandum 199631, Groningen Growth and Development Centre, University of Groningen.
  4. W. Erwin Diewert, 1995. "Axiomatic and Economic Approaches to Elementary Price Indexes," NBER Working Papers 5104, National Bureau of Economic Research, Inc.
  5. repec:dgr:rugggd:199631 is not listed on IDEAS
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