Hedonic index

The determination of hedonic prices is a process by which statistical offices try to take into account quality changes in the measurement of inflation better. This is particularly necessary where the quality and features of goods quickly change, especially about the case of electronic goods. Taking a commercially available today computer to scale, so there were five years ago on the market no device with today's performance characteristics, while a then standard unit would probably no longer available today. Consequently, the calculation of a price index for computers almost inevitably involves the risk of false results.

Example

Suppose a computer costs € 850 and has a hard drive with 120 GB capacity. Two years later, a comparable computer costs € 900 and is equipped with a 250 GB hard drive. Other differences in the performance characteristics are not available. A direct price comparison is then that the computer has increased in price by 5.9 percent. But if the size of the disk considered, then a price decrease of 7.1 € / GB to 3.6 € / GB, so recorded almost by 50%. Such a relative price reduction due to an increase in performance is in the determination of a price index value taken into account by the calculation of hedonic prices.

Criticism

Precisely because of the rapid development in the field of computer hardware, the hedonic price method, however, is controversial. A personal computer in 2000 had the same computing power as an entire data center from 1980 and compared according to the hedonic method with its price. This computing power, however, was necessary in 2000 in a typical Windows PC already for running most everyday office tasks such as writing a text. The proliferation of computing power can therefore not be equated with a multiplication of quality. It is even criticized that the development of common software than compensated for the increase in performance. Compared to a two- year-older PC, the computer hardware is twice as powerful. For the user, resulting in the same work item on the newer PC but even a performance penalty.