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Reassessing the U.S. Quality Adjustment to Computer Prices

Reassessing the U.S. Quality Adjustment to Computer Prices

The Role of Durability and Changing Software

Chapter:
(p.129) 3 Reassessing the U.S. Quality Adjustment to Computer Prices
Source:
Price Index Concepts and Measurement
Author(s):
Robert C. Feenstra, Christopher R. Knittel
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226148571.003.0004

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

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