THE MEASUREMENT OF HOUSING OUTPUT: U.S. AND SOVIET CASE STUDIES

This paper examines the measurement of the output of the Housing industry in real GNP accounts of the U.S., the Soviet Union, and selected OECD countries. These real GNP accounts make use of quite different Housing indexes, based on different types of data. This paper's major empirical finding is that the (measured) growth rate of Housing output can be extremely sensitive to the type of index used.
After reviewing the concept of housing quality, the paper presents U.S. and Soviet case studies. The BEA and the CIA do not use identical procedures to measure Housing output for the U.S. and the Soviet Union: the BEA measures many more aspects of housing quality improvements than the CIA does. This difference in the two agencies' procedures increases the growth rate of the US. Real Estate industry relative to the growth rate of the Soviet Housing industry. The idea behind the two case studies is to remeasure Housing output far the Soviet Union (U.S.) using an index that approximates the BEA (CIA) index. The purpose of these studies is the calculation of numerical magnitudes: to what degrees are the levels and growth rates of Housing sensitive to the type of index that is used. The calculations for the U.S. are useful because they show the important role of housing quality growth in the U.S., and because they make the magnitudes reported for the Soviet Union more credible. The Soviet case study provides numerical support for the proposition that the post-WWII growth rate of Soviet housing quality has been considerable and exceeds the growth rate implicit in the CIA output figures.     

PRICES AND PRICE ANALYSIS IN THE FRAMEWORK OF THE NATIONAL ACCOUNTS

The paper discusses the role of prices in the framework of the new System of National Accounts (SNA) in terms of three major uses: (1) deflation, (2) price indicators, and (3) price analysis. Following a brief review of the price and quantity measures required by the new SNA with its emphasis on deflation of commodity flows and input-output accounts, in addition to the more conventional deflation of final demand categories, the paper discusses some of the conceptual, methodological and data problems involved in implementing the various uses of prices in the new SNA. Implementing the use of prices as deflators depends, in part, on the concept of output selected (national versus domestic; gross versus net), and which of six concepts of valuation, ranging from purchasers'value to true factor cost, is used. Some of the difficulties in deflating nonmarket flows (e.g., interplant transfers) and industry value added, based on the double deflation method, are discussed. In concept price deflators, which have shifting weights, cannot be used as price indicators, which should have fixed weights. In practice, this is often disregarded and the deflators are used as price indicators. The paper support the SNA recommendation for the development of price indexes with fixed weights to be used as price indicators, in addition to the implicit price deflators. Research in the United States indicates that differences in weights can result in different price measures for various subperiods, components of demand and sector output. Periodic revisions in weights to provide more current fixed weights for price and quantity indexes in each subperiod may minimize the problem but it introduces a new problem—lack of comparability with the constant price tables in the SNA which have fixed weights for the entire period. The new SNA provides a comprehensive and integrated framework for price analysis including the analysis of the structure of aggregate price changes, the industrial origin of final demand prices, and the impact of price change in one sector of the economy on the rest of the economy. Some major gaps which need to be overcome in order to implement the use of the new SNA for price analysis include the development of industry capital stock estimates, separate estimates of proprietors’income, reconciliation of value added and distribution share estimates, and the development of a wide variety of information to supplement the conventional input-output tables in the SNA. Implementing the various objectives of price measures within the framework of the accounts will require a number of improvements in existing price measures and expanding the scope of coverage. “List” prices should be superseded by “transactions” prices and better techniques and data need to be developed to provide for quality adjustment of prices. Coverage will need to be expanded to include services, freight rates, trade margins, government expenditures, and also fill in gaps for many manufactured products. Finally, where possible, use of unit values as price indexes or deflators, e.g., imports and exports, should be replaced by direct price measures.     

CAPITAL AGGREGATION IN THE PRESENCE OF OBSOLESCENCE-INDUCING TECHNICAL CHANGE

The major question addressed is the treatment of capital embodied technical progress. Should Obsolescence be deducted to calculate a net stock, or should quality adjustments be made in each vintage of new capital, or both, or neither? In order to estimate the contribution of new investment to growth it is necessary to use a capital stock where different vintages are weighted in proportion to their marginal products. The commonly used gross capital measures do not do this, because they do not allow for the higher marginal product of more modern capital. Such an allowance for capital embodied technical progress can be made either by quality adjusting new capital or by incorporating obsolescence into the valuation of the old capital (but not both). However, even if new capital incorporates an allowance for improved quality, it will still be necessary to revalue the old capital. Frequently, a reasonable approximation to the net capital stock results from a linear decline in quasi-rents and can be approximated by published estimates of the stock of capital net of straight line depreciation. Steady technical progress will not lead to the commonly used exponential service decline functions. To avoid overestimating the return to investment when technology changes it will be necessary to use information on capital embodied technical change to revalue old capital, rather than to change the price indices for new capital.     

AN EVALUATION OF THE USE OF HEDONIC REGRESSIONS FOR BASIC COMPONENTS OF CONSUMER PRICE INDICES

The importance of adjusting for quality changes in the measurement of consumer prices, and the role hedonic regressions can play in achieving this, is well recognised. However, the use of such regressions can take different forms, including (i) adjustments by statistical offices for non-comparable substitutions via the matched models method , (ii) direct estimates from the coefficients on dummy variables for time, and (iii) exact hedonic and superlative indices corresponding to a constant utility formulation from an economic theoretic approach. The literature on these approaches generally deals with each in isolation; the purpose of this paper is to outline and evaluate them in order to draw conclusions as to their practical suitability for the compilation of quality-adjusted consumer prices indexes. The case is argued for a move towards the last of these approaches, which developments in electronic data retrieval (scanner data) now make feasible. The paper concludes with the results of some empirical work comparing the results of the direct method with those from the exact, superlative, approach.     

Assessing economic complexity as interindustry connectedness in nine OECD countries

Economic complexity can be defined as the level of interdependence between the component parts of an economy. In input–output systems interindustry connectedness is a crucial feature of analysis, and there are many different methods of measuring it. Most of the measures however, have important drawbacks to be used as a good indicator of economic complexity, because they were not explicitly made with this purpose in mind. In this paper, we present, discuss and compare empirically different indexes of economic complexity as intersectoral connectedness, using the inter-industry tables of nine OECD countries. According to most of the measures of connectedness large economies (USA, Japan) tend to be more complex than small economies (for example, Denmark). But if another type of measures is considered, the opposite conclusion is drawn, signalling a hidden characteristic of interdependence that so far has not been detected by conventional measures. This result should qualify the widespread idea that more interconnected productive structures propagate more intensely exogenous shocks and/or economic policy measures.     

THE DUTCH ECONOMY 1921–39: REVISED MACROECONOMIC DATA FOR THE INTERWAR PERIOD

A set of revised macroeconomic time series for the Netherlands 1921–39 is presented. The series cover the "Consolidated Accounts for the Nation" of the SNA in current prices as well as the national product account and some additional series in prices for the previous year. The new interwar series differ considerably from the data that has been published before. They are also more comprehensive, more detailed, and conceptually consistent with the modern national accounts.     

Estimating Quality‐adjusted Price Changes: Method and Application to VCRs

This paper uses scanner data to generate estimates of quality‐adjusted price changes for video‐recorders. We use hedonic regressions to derive estimates of the changing worth of each quality component. These are then applied to weighted changes in the mix of quality attributes of products to derive estimates of quality‐adjusted price (QAP) changes. The data source used is electronic‐point‐of‐sale (EPOS) scanner data that are available for a wide range of goods. This study provides an example of how such methods can be more widely applied. The estimates of QAP changes correspond to constant‐utility, (hedonic) cost‐of‐living indexes defined in economic theory as the ratio of expenditure functions at constant utility allowing for changing prices and characteristics of goods. This method is proposed as an improvement on the existing direct method , which takes its estimates directly from the coefficients associated with 'time dummies' in a hedonic regression. We finally undertake a matching process, akin to that used by statistical offices, and compare the results. Direct comparisons with RPI estimates and these hedonic approaches are not easy since the approaches use quite different data sets. Our replication of a procedure akin to that used for the RPI on the scanner data set provides insights into sources of potential bias.     

Labour Hoarding, Price Rigidity and the Theory of Imperfect Competition under Uncertain Demand

It is shown that a monopolistic firm under uncertainty may be inclined to keep some of its output unsold when demand is low. This gives rise to changes in conventional results. Under uncertainty, a risk-neutral monopolistic firm produces more than in a deterministic environment and it refuses to sell its total output when demand is low, because the marginal revenue could become negative or lower than the cost of selling the product. Moreover, in this framework, prices are shown to be more rigid downwards than upwards. The model also provides a new explanation for labour hoarding.
JEL classification : D 24; D 42     

Using stochastic frontier models to mitigate omitted variable bias in hedonic pricing models: A case study for air quality in Bogotá, Colombia

Hedonic pricing models use property value differentials to value changes in environmental quality. If unmeasured quality attributes of residential properties are correlated with an environmental quality measure of interest, conventional methods for estimating implicit prices will be biased. Because many unmeasured quality measures tend to be asymmetrically distributed across properties, it may be possible to mitigate this bias by estimating a heteroskedastic frontier regression model. This approach is demonstrated for a hedonic price function that values air quality in Bogotá, Colombia.     

Chained,exact and superlative hedonic price changes: estimates from microdata

Scanner data are used to calculate chained, exact (and superlative) hedonic price indexes for television sets. The data source is available for a wide range of goods, the application providing an example of how this method can be more widely applied. The indexes correspond to constant utility, hedonic cost-of-living indexes. The approach improves on the existing direct method, which takes its estimates directly from the coefficients on time dummies in a hedonic regression. It also improves on the matched model method used by statistical agencies. The differences between actual price changes and exact hedonic quality-adjusted price changes are found to be substantial. Base-period and current-period weighted exact hedonic indexes are similar, thus providing good approximations to a superlative index. Estimates from the direct, dummy variable approach were compared to the superlative indexes. The disparities between the results argue for caution in the use of the direct, dummy variable approach to estimating quality-adjusted price changes.     

An assessment of mortgage interest inflation measurement bias in the UK

This article recognizes the highly differentiated nature of UK mortgages. Applying hedonic pricing models in the generation of interest quality adjusted indices this study would suggest the need for a 0.24 percentage point increase in the retail price index (RPI) (which, at an average RPI of 3%, represents a measurement error of 9%). Moreover, this study finds that lenders tend to restrain increases in observable initial interest rates, but more than recoup this restraint through quality adjustments. These findings question the practice of removing mortgage interest repayments from macroeconomic inflationary target measures. This indicates the need to recognize the indirect inflationary impact of base rate rises on the price of highly differentiated debt based products.     

THE MEASUREMENT OF CHANGES IN QUALITY

This paper is concerned with the theoretical problems of devising indexes of quality change and with some of the practical problems of constructing such indexes from market data, relating these to the various attempts to construct such indexes in the past. The general conclusion is that, while quality is inherently ordinal, there are three different indexes which might be taken as "measures" of quality change. If changes are sufficiently small, the values of all three indexes will coincide and then, only, can we consider any one of them to be an unambiguous measure of the change.     

ACCOUNTING FOR GOLD: THE SOUTH AFRICAN CASE

Real output measures in the UN System of National Accounts should be continually re-evaluated, to ensure they are providing indicators appropriate for user needs. The South African gold mining industry is an intriguing case in which the conventional output indicators are highly misleading for various analytical purposes, largely because the usual background assumptions are particularly invalid. Due to the size of the industry, its precise treatment can have sizeable effects on estimates of the growth of GDP, particularly over periods when the price of gold changes. A number of easily produced additional output measures are suggested to help analyse productivity growth and differences between the growth of real output and real incomes.     

The role of innovation and quality change in Japanese economic growth

This paper explores the use of time series data to isolate quality change in the Japanese economy using a hedonic procedure. We argue that the traditional approach to hedonic estimation based upon panel data sets of different brands in a given product area is extremely resource intensive and, thus, unlikely to be adopted by official statistical bodies outside of key areas, such as computers. This paper adopts a “top-down” approach to see whether more traditional measures of technical change, such as patents, can be used to separate pure inflation from quality change. If this is possible, it offers a much simpler route to estimate the role of quality change in economic growth and performance. In practice, we extend the analysis not only to include patents, but other forms of intellectual property that might reflect technology and attribute changes, such as designs, utility models and trademarks. We begin by taking a longer-term historical perspective, exploring the development of indigenous inventive capacity in Japan during the early years when R&D data are not available. It is possible to show that the rise in utility models pre-dates the main growth in patenting activity, suggesting the development in more low-level indigenous creative work prior to higher level inventive activity. The principal aim of this paper, however, is to demonstrate that it is possible to develop robust models to explain changes in the producer price index in Japan, which can then be used to re-examine Japanese growth performance over the period from about 1960. If the official Japanese statistical body has fully accounted for quality change in the price indices (i.e. produced fully quality-constant price deflators), then the official estimates of growth will be correct. However, we provide strong evidence that this is not the case. Changes in quality, proxied by the IP variables, are important determinants of prices in Japan over the period 1960 to 1995 as a whole. Indeed, we provide evidence that the true rate of growth of the Japanese economy, taking into account the rate of quality change, is significantly higher than that suggested in official statistics.     

HOUSEHOLD SAVING IN THE '90s: EVIDENCE FROM CROSS-SECTION WEALTH SURVEYS

This paper uses a series of cross-section surveys to measure how wealth accumulation and active saving rates varied across cohort-groups during the early and mid 1990s. Our estimated rates of saving and wealth change across cohorts show a somewhat more dramatic life-cycle pattern than found in previous studies, in part because we use a new technique, and in part because the cross-section wealth surveys we use oversample the wealthiest families whose behavior dominates aggregate changes. Adjusting the wealth-change rates for bequests and subtracting out the capital gains component of wealth change move the estimates in the direction of results from previous studies, but the biggest changes in that direction result from excluding the top of the wealth distribution in each year.     

MEASUREMENT OF THE ROLE O F THE PUBLIC SECTOR IN THE FINNISH ECONOMY

Following the growth of the public sector traditional measures of the size of the public sector have appeared to be inadequate for policy purposes. In the article the role of the public sector in the Finnish economy is described first by using some traditional methods and indicators. The historical background of the development is briefly discussed. After that some specific problems of the measurement are discussed. These problems include measurement of output and productivity, definition of appropriate balance of the public sector, different measures to describe the size and scope of the public sector, role of tax reliefs and subsidies, different organizational arrangements, public sector regulation etc.
The growth of the public sector takes many different forms and it appears to be more difficult than formerly to obtain a comprehensive picture of the scope of the public sector. For different purposes different indicators have to be used. At the end of the paper the implications of the changing emphasis in the public policy are discussed.     

The product life cycle and sample representativity bias in price indexes

Official price indexes are usually calculated using matched samples of products. If products exhibit systematic price trends at different points in their life cycle then matched sample methods may introduce bias if the life cycle movement in the sample does not adequately reflect that in the population. This article explores the extent of these life cycle pricing effects and then examines the bias it can introduce in measured inflation. A large US supermarket scanner data set for six cities and six products over 12 years is used. Using hedonic methods we find that the life cycle component of price change is important across a range of products and cities. To explore the bias introduced by these movements, we use simulations that construct indexes with different sample update frequency. For indexes that are never completely resampled, we find an annual absolute bias of 0.88 and 0.59 percentage points depending upon whether we use the actual prices or prices imputed from our hedonic model. This compares with absolute biases of 0.34 and 0.10 percentage points for the corresponding cases for samples, which are re-selected annually. Thus our results provide strong support for more frequently updating index samples.     

NONMARKET VALUATION AND THE COURTS: THE CASE OF THE EXXON VALDEZ

This paper examines a natural resource damages case, the Exxon Valdez, and contrasts the use and acceptance of market and nonmarket valuation methods in two related sectors: commercial fishing and Alaska native subsistence use of fish and wildlife. Much economic literature focuses on how, in principle, one should value environmental injury. These principles and methods have been codified in the Department of Interior and National Oceanic and Atmospheric and Administration natural resource damage regulations that implement the Comprehensive Environmental Response, Compensation, and Liability Act and the Oil Pollution Act of 1990. However, these liability rules are fairly new, and thus little evidence exists on the acceptance of valuation methods by the courts and juries. In this regard, the Exxon Valdez case is of particular interest because substantial resources were at stake and much of the case went all the way through to a jury verdict. The two major plaintiff classes—commercial fishermen and Alaska natives—are market and nonmarket versions, respectively, of otherwise fairly similar economic sectors. However, the court's acceptance of the "correct in principle" valuation methods appropriate to each sector was asymmetric. The court accepted as admissible the market valuation procedures (primarily "diminution in market price") used by the commercial fish experts but rejected the nonmarket valuation procedure applied to subsistence uses (a hedonic price model).     

A hedonic-output-index-based approach to modeling polluting technologies

Despite some recent criticisms, the conventional radial distance function, which treats undesirable by-products as either frontier shifters or inputs, remains a popular go-to formulation of polluting production processes among practitioners. This unfading popularity is arguably driven by the ability of radial distance functions, unlike alternative directional distance functions, to allow for unit-free multiplicative changes in arguments as well as, by implicitly postulating the radial direction, to free researchers from the dilemma of having to explicitly choose the directional vector. In this paper, we offer a generalization of the standard radial distance function to polluting technologies that can accommodate undesirable by-products in a more economically meaningful way. Specifically, we propose modeling undesirable outputs via a hedonic output index, which is meant to ensure that pollutants are treated as outputs, as opposed to inputs or theoretically unregulated frontier shifters, while also recognizing their undesirable nature. By using a radial input distance function generalized to encompass an (unobservable) hedonic output index of desirable and undesirable outputs, we are able to meaningfully describe relationships between different products (including the complementarity of desirable and undesirable outputs) within producible output sets as well as to represent technically feasible polluting production possibilities given inputs. An empirical application of our methodology to the case of Dutch dairy farms in 2001–2009 demonstrates the complexity of interactions between outputs, thereby attesting to the value of more elaborate representations of production possibilities.     

ON OUTPUT OF THE SWEDISH EDUCATION SECTOR: ADDITIONAL REMARKS

The main purpose of this paper is to relate the empirical attempt of measuring output from the education sector to theoretical results about the welfare significance of an extended net national product (NNP) measure. We show that economic theory provides a more focused way of interpreting such output estimates, which has not been recognized in previous studies. The paper also contains new estimates of the output from the Swedish education sector.