TY  - JOUR
AU  - Feenstra,Robert C.
TI  - Measuring the Welfare Effect of Quality Change: Theory and Application of Japanese Autos
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4401
PY  - 1993
Y2  - July 1993
UR  - http://www.nber.org/papers/w4401
L1  - http://www.nber.org/papers/w4401.pdf
N1  - Author contact info:
Robert C. Feenstra
Department of Economics
University of California, Davis
One Shields Avenue
Davis, CA  95616
Tel: 530/752-7022
Fax: 530/752-9382
E-Mail: rcfeenstra@ucdavis.edu
AB  - The purpose of this paper is to identify conditions under which hedonic price indexes provide an exact measure of consumer welfare, so that the welfare effects of quality change can be inferred. Our results are quite positive in providing a rational for existing practices, though the conditions needed to justify these practices are somewhat restrictive. An application of our results is provided to the increase in characteristics of Japanese autos sold in the United States following the imposition of quotas in 1981. We argue that consumers did not value the additional characteristics at their former shadow-values, but rather, attached a lower value to the increase in characteristics. We compute the exact index that reflects this lower imputed value, and compare it to the conventional quality adjustment. The deadweight loss associated with the quality change is between one-quarter and one-third of the value of upgrading.
ER  -