Cellular Telephone, New Products and the CPI
Cellular telephone is an example of a new product that has significantly affected how Americans live. Since their introduction in 1983, cellular telephone adoption has grown at 25-35% per year such that at year end 1996 about 42 million cellular telephones are in use in the U.S. However, cellular telephone has not been included in the construction of the CPI, and the CPI will not include cellular telephone until 1998 or 1999. This neglect of new goods leads to an upward bias in the CPI. The analysis of the paper demonstrates that the gains in consumer welfare from a new product such as cellular telephone can be substantial. The paper also gives an approximation result which the BLS could use to calculate gains in consumer welfare from new products for use in the CPI. The BLS telecommunications CPI estimates that since 1988, telecommunications prices have increased by 8.5% or an increase of 1.02% per year. This estimate ignores cellular service. A corrected telecommunication services COLI that includes cellular service decreased from 1.0 in 1988 to 0.903 in 1996 for a decrease of 1.28% per year. Thus, the bias in the BLS telecommunications services CPI equals approximately 2.3 percentage points per year. The neglect of new products in the CPI can lead to significant biases.
|Date of creation:||Mar 1997|
|Publication status:||published as Hausman, Jerry, 1999. "Cellular Telephone, New Products, and the CPI," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 188-94, April.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Jerry A. Hausman, 1996.
"Valuation of New Goods under Perfect and Imperfect Competition,"
NBER Chapters,in: The Economics of New Goods, pages 207-248
National Bureau of Economic Research, Inc.
- Hausman, J.A., 1994. "Valuation of New Goods Under Perfect and Imperfect Competition," Working papers 94-21, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jerry A. Hausman, 1994. "Valuation of New Goods under Perfect and Imperfect Competition," NBER Working Papers 4970, National Bureau of Economic Research, Inc.
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- J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
- Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, October.
- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
- Pollak, Robert A., 1989. "The Theory of the Cost-of-Living Index," OUP Catalogue, Oxford University Press, number 9780195058703.
- Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September. Full references (including those not matched with items on IDEAS)
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