Using hedonic prices to estimate quality changes in American and Japanese cars
The economic foundation of this thesis lies in the idea of characteristic approach to consumer demand proposed by Kevin Lancaster (1971). This opines that a good per se does not provide consumers with utility, rather the characteristics inherent in the good give rise to utility. Thus every characteristic, from the perception of the consumer, has a price. This is the hedonic price or implicit price. The hedonic pricing approach was later used by Feenstra (1987) to find how much of price increases in Japanese and American cars during 1981–1985 could be attributed to quality improvement. This research takes forward the techniques of Feenstra to car price changes of the last decade and further adds new dimensions to it by incorporating new characteristics and using a different regression technique. The overall finding of Feenstra regarding Japanese cars having a higher quality improvement is found again, but to a lesser degree. The results of this research are then validated by comparisons with the Consumer Price Index for new cars and adjusted for the quality bias proposed in 1996 by the Boskin Commission.^
Biswa Pratim Bhowmick,
"Using hedonic prices to estimate quality changes in American and Japanese cars"
(January 1, 2001).
ETD Collection for Fordham University.