Quality-adjusted price indexes for portable computers

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Abstract
Constructing an accurate price index requires controlling for changes in quality. The potential for bias is especially problemaic for rapidly changing goods such as computers. This study extends previous research on quality-adjusted, or hedonic, price indexes for computers by investigating price and quality changes in portable models. In particular, recent research by Nelson et al.(1994) and Berndt et al.(1995) on desktop and portable computers is extended. After adjusting for quality changes, price indexes in this tudy exhibit average declines of 26% to 33% per year. The magnitude of quality-adjusted price changes is consistent with these auhors and with the extensive line of research on quality-adjusted price indexes for computers of various types. The results emphasize the extent of potential bias in estimating price level changes if technological advancement is ignored. Significant potential for bias implies the need to account properly for changes in quality in consructing indexes for both individual product categories and for broad economic indicators.

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