The Development of a Hedonic Price Index for Personal Computers with Applications to Information Technology Productivity Research

Recent work, using the firm as the level of analysis, has applied econometric methods to assess the payoff to spending on information technology ( Berndt and Morrison, 1995; Brynjolfsson and Hitt, 1993, 1995, 1996; Lehr and Lichtenberg, 1997; Lichtenberg, 1995; Loveman, 1994; Morrison and Berndt, 1991; Sabyasachi and Chaya, 1996; Weill, 1990; Weill, 1992). One component to performing such an analysis is the application of an appropriate price index that accounts for quality change over time in the inputs to production, in this case, information technology. Currently, there are no valid price indexes for IT. The often-cited works of Brynjolfsson and Hitt were forced to rely on a price index ( Gordon, 1990) that was both out-of-date (ending four years before their data begins) and developed for a different type of computer (mainframe), because this index was the best available. Despite the increasing importance of microcomputers to business, an appropriately specified price index covering the microcomputer has yet to be developed.