Regression Analysis versus Linear Programming in the Analysis of Price-Quality Relationships: An Application to the Determination of.

A linear-programming approach to the measurement of quality is investigated as an alternative to the hedonic price regression. This provides a boundary measure of productive efficiency which neither imposes an arbitrary functional form nor is sensitive to inefficient observations, unlike the hedonic residuals. The two me thods are applied to 125 models avail-able on the U.K. car market in 1982. The two measures of product efficiency are compared as explanat ory variables in a market-share model. Statistically the boundary mea sure is found to be superior to the hedonic residual in determining s hares. Copyright 1987 by Blackwell Publishing Ltd