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HEDONIC METHOD

Statistics Directorate    
French Equivalent: Méthode hédoniste

Definition:
The hedonic method is a regression technique used to estimate the prices of qualities or models that are not available on the market in particular periods, but whose prices in those periods are needed in order to be able to construct price relatives.

It is based on the hypothesis that the prices of different models on sale on the market at the same time are functions of certain measurable characteristics such as size, weight, power, speed, etc and so regression methods can be used to estimate by how much the price varies in relation to each of the characteristics.

Context:
A regression technique in which observed prices of different qualities or models of the same generic good or service are expressed as a function of the characteristics of the goods or services in question.

It is based on the hypothesis that products can be treated as bundles of characteristics and that prices can be attached to the characteristics.

The characteristics may be nonnumeric attributes that are represented by dummy variables. The regression coefficients are treated as estimates of the contributions of the characteristics to the overall prices. The estimates may be used to predict the price of a new quality or model whose mix of characteristics is different from that of any product already on the market. The hedonic method is used to estimate the effects of quality changes on prices.

ILO, IMF, OECD, Eurostat, UNECE, World Bank, 2004, Producer Price Index Manual: Theory and Practice, International Monetary Fund, Washington DC

http://www.imf.org/external/np/sta/tegppi/index.htm.

Source Publication:
SNA 16.126.

Hyperlink:
http://esa.un.org/unsd/sna1993/introduction.asp

Statistical Theme: National accounts

Created on Tuesday, September 25, 2001

Last updated on Friday, July 08, 2005