Chapter

Reassessing the U.S. Quality Adjustment to Computer Prices

Edited by Robert C. Feenstra and Christopher R. Knittel

in Price Index Concepts and Measurement

Published by University of Chicago Press

Published in print February 2010 | ISBN: 9780226148557
Published online February 2013 | e-ISBN: 9780226148571 | DOI: http://dx.doi.org/10.7208/chicago/9780226148571.003.0004
Reassessing the U.S. Quality Adjustment to Computer Prices

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This chapter, which provides a new reason for why conventional hedonic methods may overstate the price decline of personal computers, treats computers as a durable good and assumes that, as software changes over time, this influences the efficiency of a computer. Anticipating the 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. The authors develop a model in which the production function for the services of a personal computer depends not only on its vector of characteristics but also on a vector of other (complementary) inputs, and they develop bounds on a constant quality price index that do not depend on being able to observe the vector of complementary inputs.

Keywords: hedonic methods; personal computers; overbuy; price index; durable good; complementary inputs

Chapter.  11626 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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