The source you linked does not state that the Boskin Commission recommended using hedonic pricing. It states that the BLS already was using hedonic pricing:
>>BLS Methodology
Our discussion of quality change and new product bias begins with a review of the methods used by the CPI to
handle quality changes in existing products and then turns to problems posed by new products. The BLS has five
different methods to cope with a model change for an existing product.
The "direct comparison" method treats all of the observed price change between the old model and the new
model as a change in price and none as a change in quality. There is no necessary bias, because quality can
decrease as well as increase. But in practice most goods tend to undergo steady improvement, and often a better
model is introduced with no change in price, causing the quality change to be missed entirely.
The "deletion" method makes no comparison at all between the prices of the old and new model. Instead, the
weight attributable to this product is applied to the average price change of other products in the same commodity
classification. To the extent that the deletion method is used, the CPI consists disproportionately of commodities
of constant quality which may be further along in the product cycle.
The "linking" method can be used if the new and old model are sold simultaneously. In this case the price
differential between the two models at the time of introduction of the new model can be used as an estimate of the
value of the quality differential between the two models. As indicated above, this can lead to an understatement of
quality change if the new model gains market share. Also, a quality improvement in the new model can occur even
if it costs less or the same as the old model, as in the case of the VCR where the price fell continuously while
programming capability and reproduction quality improved.
The "cost estimation" method attempts to establish the cost of the extra attributes of the new model. Problems in
practice with the costing method have been its infrequency of use, and the fact that it has been applied
disproportionately in the case of automobiles relative to other products. This raises the possibility that there is a
spurious upward "drift" in the relative price of other products relative to automobiles due to an uneven application
of the costing method. An emerging source of upward bias is that products like automobiles are benefitting from
the improved quality of materials like steel (which does not rust as it once did) and tires (which last many more
miles). To the extent that some of these inputs to the auto production process are experiencing quality
improvements of their own in excess of differences in cost, these will not be picked up by the BLS cost-based
quality estimation procedure.
Thus far, the CPI has introduced only in its apparel category an alternative methodology called the "hedonic
regression method" for estimating the value of quality change. The hedonic approach can be viewed as an
alternative method to manufacturers' cost estimates in making quality change adjustments. It assumes that the
price of a product observed at a given time is a function of its quality characteristics, and it estimates the imputed
prices of such characteristics by regressing the prices of different models of the product on their differing
embodied quantities of characteristics. Thus the hedonic approach is less a new method than an alternative to cost
estimates to be used when practical factors make it more suitable than the conventional method.
By their very nature hedonic indexes require large amounts of data. Given the thousands of separate products that
are produced in any modern industrial society, the need to collect a full cross-section of data on each product
presents a substantial obstacle to the full-blown adoption of the hedonic technique. But in many cases the data
already collected by CPI field agents can be used for hedonic regression analysis; this is already done in the case
of apparel.
Another possible objection is that it is impossible to construct a hedonic index in the timely fashion required by the
CPI, with its orientation to producing within a few weeks an estimate of month-to-month price changes that can
never be revised. But this ignores the fact that coefficients can be estimated on the basis of historical data, and
these previously estimated coefficients can be used to evaluate quality change when a new model is introduced.
This approach would be particularly suitable for product categories subject to a rapid succession of new model
introductions, notably TV sets and personal computers.<<
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