IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Re-Assessing the U.S. Quality Adjustment to Computer Prices: The Role of Durability and Changing Software

  • Christopher Knittel
  • Robert Feenstra

    (Department of Economics, University of California Davis)

In the second-half of the 1990s, the positive impact of information technology on productivity growth for the United States became apparent. The measurement of this productivity improvement depends on hedonic procedures adopted by the Bureau of Labor Statistics (BLS) and Bureau of Economic Analysis (BEA). In this paper we suggest a new reason why conventional hedonic methods may overstate the price decline of personal computers. We model computers as a durable good and suppose that software changes over time, which influences the efficiency of a computer. Anticipating future increases in software, purchasers may “overbuy” characteristics, in the sense that the purchased bundle of characteristics is not fully utilized in the first months or year that a computer is owned. In this case, we argue that hedonic procedures do not provide valid bounds on the true price of computer services at the time the machine is purchased with the concurrent level of software. To assess these theoretical results we estimate the model and find that before 2000 the hedonic price index constructed with BLS methods overstates the fall in computer prices. After 2000, however, the BLS hedonic index falls more slowly, reflecting the reduced marginal cost of acquiring (and therefore marginal benefit to users) of characteristics such as RAM, hard disk space or speed.

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://wp.econ.ucdavis.edu/06-32.pdf
Download Restriction: no

Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 632.

as
in new window

Length: 50
Date of creation: 16 Nov 2006
Date of revision:
Handle: RePEc:cda:wpaper:06-32
Contact details of provider: Postal: One Shields Ave., Davis, CA 95616-8578
Phone: (530) 752-0741
Fax: (530) 752-9382
Web page: http://www.econ.ucdavis.edu
Email:


More information through EDIRC

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. C. Lanier Benkard & Patrick Bajari, 2003. "Hedonic Price Indexes with Unobserved Product Characteristics, and Application to PC's," NBER Working Papers 9980, National Bureau of Economic Research, Inc.
  2. Robert C. Feenstra, 1995. "Exact Hedonic Price Indexes," NBER Working Papers 5061, National Bureau of Economic Research, Inc.
  3. Stephen D. Oliner & Daniel E. Sichel, 2000. "The resurgence of growth in the late 1990s: is information technology the story?," Finance and Economics Discussion Series 2000-20, Board of Governors of the Federal Reserve System (U.S.).
  4. Benkard, C. Lanier & Bajari, Patrick, 2003. "Hedonic Price Indexes with Unobserved Product Characteristics, and Application to PC's," Research Papers 1841, Stanford University, Graduate School of Business.
  5. G. Christian Ehemann & Brent R. Moulton, 2001. "Balancing the GDP Account," BEA Papers 0014, .
  6. Stephen D. Oliner, 1990. "Constant-quality price change, depreciation, and retirement of mainframe computers," Working Paper Series / Economic Activity Section 110, Board of Governors of the Federal Reserve System (U.S.).
  7. Alan G. White & Jaison R. Abel & Ernst R. Berndt & Cory W. Monroe, 2010. "Hedonic Price Indexes for Personal Computer Operating Systems and Produtivity Suites," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 787-807 National Bureau of Economic Research, Inc.
  8. Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series WP-03-33, Federal Reserve Bank of Chicago.
  9. W. Erwin Diewert, 1980. "Aggregation Problems in the Measurement of Capital," NBER Chapters, in: The Measurement of Capital, pages 433-538 National Bureau of Economic Research, Inc.
  10. 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..
  11. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  12. Ariel Pakes, 2003. "A Reconsideration of Hedonic Price Indexes with an Application to PC's," American Economic Review, American Economic Association, vol. 93(5), pages 1578-1596, December.
  13. Robert C. Feenstra & Matthew D. Shapiro, 2003. "Scanner Data and Price Indexes," NBER Books, National Bureau of Economic Research, Inc, number feen03-1, August.
  14. Glenn Ellison & Drew Fudenberg, 1999. "The Neo-Luddite's Lament: Excessive Upgrades in the Software Industry," Harvard Institute of Economic Research Working Papers 1870, Harvard - Institute of Economic Research.
  15. W. Erwin Diewert, 2003. "Hedonic Regressions. A Consumer Theory Approach," NBER Chapters, in: Scanner Data and Price Indexes, pages 317-348 National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:cda:wpaper:06-32. 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: (Scott Dyer)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.