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Exact Hedonic Price Indexes

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  • Feenstra, Robert C

Abstract

Using the marginal value of characteristics, the author shows how to construct bounds on the exact hedonic price index. When prices are above marginal costs, then his bounds still apply but the value of characteristics cannot be measured so easily from a hedonic regression. Since the price-cost markups are an omitted variable, they will bias the coefficients obtained. For a special class of utility functions, the author argues that a linear regression will still provide a measure of the marginal value of characteristics but a log-linear regression will overstate these values. Copyright 1995 by MIT Press.

Suggested Citation

  • Feenstra, Robert C, 1995. "Exact Hedonic Price Indexes," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 634-653, November.
  • Handle: RePEc:tpr:restat:v:77:y:1995:i:4:p:634-53
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    References listed on IDEAS

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    1. Fisher, Franklin M. & Shell, Karl, 1972. "The Economic Theory of Price Indices," Elsevier Monographs, Elsevier, edition 1, number 9780122577505 edited by Shell, Karl.
    2. Pollak, Robert A., 1983. "The treatment of `quality' in the cost of living index," Journal of Public Economics, Elsevier, vol. 20(1), pages 25-53, February.
    3. Zvi Griliches, 1991. "Hedonic Price Indexes and the Measurement of Capital and Productivity: Some Historical Reflections," NBER Chapters,in: Fifty Years of Economic Measurement: The Jubilee of the Conference on Research in Income and Wealth, pages 185-206 National Bureau of Economic Research, Inc.
    4. Swan, Peter L, 1970. "Durability of Consumption Goods," American Economic Review, American Economic Association, vol. 60(5), pages 884-894, December.
    5. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    6. Pollak, Robert A, 1978. "Welfare Evaluation and the Cost-of-Living Index in the Household Production Model," American Economic Review, American Economic Association, vol. 68(3), pages 285-299, June.
    7. Bresnahan, Timothy F., 1981. "Departures from marginal-cost pricing in the American automobile industry : Estimates for 1977-1978," Journal of Econometrics, Elsevier, vol. 17(2), pages 201-227, November.
    8. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
    9. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    10. Jones, Larry E, 1988. "The Characteristics Model, Hedonic Prices, and the Clientele Effect," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 551-567, June.
    11. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    12. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    13. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    14. Andrew B. Abel, 1983. "Market Structure and the Durability of Goods," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 625-637.
    15. Robert C. Feenstra, 1993. "Measuring the Welfare Effect of Quality Change: Theory and Application of Japanese Autos," NBER Working Papers 4401, National Bureau of Economic Research, Inc.
    16. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-228, May.
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    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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