Constructing Quality Adjusted Price Indexes: a Comparison of Hedonic and Discrete Choice Models
The Boskin report (1996) concluded that the US consumer price index (CPI) overestimated the inflation by 1.1 percentage points. This was due to several measurement errors in the CPI. One of them is called quality change bias. In this paper two methods are compared which can be used to eliminate quality change bias, namely the hedonic method and a method based on the use of discrete choice models. The underlying micro-economic fundations of the two methods are compared as well as their empirical implementation. Although the discrete choice model has not often been used in order to calculate quality adjusted price indexes it seems to be quite promising to do so.
|Date of creation:||2001|
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- Aviv Nevo, 2003.
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The Review of Economics and Statistics,
MIT Press, vol. 85(2), pages 266-275, May.
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- Amil Petrin, 2001. "Quantifying the Benefits of New Products: The Case of the Minivan," NBER Working Papers 8227, National Bureau of Economic Research, Inc.
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- Cropper, Maureen L, et al, 1993. "Valuing Product Attributes Using Single Market Data: A Comparison of Hedonic and Discrete Choice Approaches," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 225-32, May.
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