Price Hedonics: A Critical Review

[...]These political considerations may seem tangential to thesubject of price hedonics, but the events following fromGreenspan’s remark have linked the two issues. First, theSenate Finance Committee consulted a panel of experts, andthat panel reached a consensus supporting Greenspan’sestimate. Congress subsequently established the AdvisoryCommission to Study the Consumer Price Index (betterknown as the Boskin Commission, after its chairman) toestimate the level of the CPI bias. Boskin et al. (1996) arrived atan estimated bias of 1.1 percentage points per year—a levelalmost identical to Greenspan’s estimate. Furthermore, thereport said that about half (0.6) of that bias could be attributedto product innovations that were being overlooked in the CPI.A parallel study by Shapiro and Wilcox (1996) came to thesame conclusion, estimating an overall bias of 1 percentagepoint per year, with 0.45 of that bias coming from qualitychanges and new goods. The study also observed that this biaswas the most difficult to correct, likening the qualityadjustmentprocess to house-to-house combat.[...]