New products, quality changes, and welfare measures computed from estimated demand systems

Aviv Nevo*

*Corresponding author for this work

Research output: Contribution to journalArticle

44 Scopus citations

Abstract

This paper examines the construction of a price index based on an estimated-demand system. In principle the method examined can produce a price index that takes account of the introduction of new products and quality changes in existing products. However, I isolate two key assumptions that have to be made in order to interpret the demand estimates into welfare measures. Using estimates of a brand-level demand system for ready-to-eat cereal, I demonstrate the empirical importance of the assumptions. For the data I use, depending on the interpretation of the demand estimates, a price index can range between a 35% increase over the five years examined to a 2.4% decrease.

Original languageEnglish (US)
Pages (from-to)266-275
Number of pages10
JournalReview of Economics and Statistics
Volume85
Issue number2
DOIs
StatePublished - May 1 2003

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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