IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/4401.html
   My bibliography  Save this paper

Measuring the Welfare Effect of Quality Change: Theory and Application of Japanese Autos

Author

Listed:
  • Robert C. Feenstra

Abstract

The purpose of this paper is to identify conditions under which hedonic price indexes provide an exact measure of consumer welfare, so that the welfare effects of quality change can be inferred. Our results are quite positive in providing a rational for existing practices, though the conditions needed to justify these practices are somewhat restrictive. An application of our results is provided to the increase in characteristics of Japanese autos sold in the United States following the imposition of quotas in 1981. We argue that consumers did not value the additional characteristics at their former shadow-values, but rather, attached a lower value to the increase in characteristics. We compute the exact index that reflects this lower imputed value, and compare it to the conventional quality adjustment. The deadweight loss associated with the quality change is between one-quarter and one-third of the value of upgrading.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:4401
    Note: ITI PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w4401.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Robert C. Feenstra, 1988. "Quality Change Under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 131-146.
    2. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, vol. 46(4), pages 883-900, July.
    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. Kala Krishna, 1985. "Tariffs vs. Quotas with Endogenous Quality," NBER Working Papers 1535, National Bureau of Economic Research, Inc.
    6. Timothy F. Bresnahan & Dennis A. Yao, 1985. "The Nonpecuniary Costs of Automobile Emissions Standards," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 437-455, Winter,.
    7. 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..
    8. Randi Boorstein & Robert C. Feenstra, 1987. "Quality Upgrading and its Welfare Cost in U.S. Steel Imports, 1969-74," NBER Working Papers 2452, National Bureau of Economic Research, Inc.
    9. Carlos Alfredo Rodriguez, 1979. "The Quality of Imports and the Differential Welfare Effects of Tariffs, Quotas, and Quality Controls as Protective Devices," Canadian Journal of Economics, Canadian Economics Association, vol. 12(3), pages 439-449, August.
    10. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    11. 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.
    12. Andrew B. Abel, 1983. "Market Structure and the Durability of Goods," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 625-637.
    13. Simon P. Anderson & Andre de Palma & Jacques-Francois Thisse, 1987. "Demand for Differentiated Products," Discussion Papers 726, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Feenstra, Robert C, 1995. "Exact Hedonic Price Indexes," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 634-653, November.
    2. Goolsbee, Austan, 2004. "Taxes and the quality of capital," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 519-543, March.
    3. Feenstra, Robert C., 1995. "Estimating the effects of trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 30, pages 1553-1595 Elsevier.
    4. Ljunge Martin, 2011. "Do Taxes Produce Better Wine?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-16, December.
    5. Herguera, Iñigo & Lutz, Stefan, 1997. "Trade policy and leapfrogging," UC3M Working papers. Economics 7214, Universidad Carlos III de Madrid. Departamento de Economía.
    6. Lutz, Stefan H., 2002. "The Effects of Quotas on Vertical Intra-Industry Trade," ZEW Discussion Papers 02-61, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    7. repec:kap:iaecre:v:11:y:2005:i:2:p:163-173 is not listed on IDEAS
    8. S Lutz, 2005. "Can a Tariff on Foreign Competition Harm the Domestic Industry?," The School of Economics Discussion Paper Series 0510, Economics, The University of Manchester.
    9. Stefan Lutz, 2005. "The Effect of Quotas on Domestic Product Price and Quality," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(2), pages 163-173, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4401. 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: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.