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Bias Due to Input Source Substitutions: Can It Be Measured?

Author

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  • Diewert, Erwin
  • Nakamura, Alice O.

Abstract

Once a business opts to purchase rather than produce an input, it can also change the source from which the product is procured. Producer price index programs face problems in dealing with price changes associated with sourcing changes. We present measures for price index bias due to sourcing substitutions. We begin with highly simplified cases to convey the rationale for our approach, and then show how the measures could be generalized. We also explain related aspects of the industry accounts. This material makes it clear that the growth of outsourcing and the related increases in domestic and foreign sourcing substitutions pose important challenges for statistics agencies.

Suggested Citation

  • Diewert, Erwin & Nakamura, Alice O., 2010. "Bias Due to Input Source Substitutions: Can It Be Measured?," Economics working papers erwin_diewert-2010-15, Vancouver School of Economics, revised 13 Jul 2010.
    • Handle: RePEc:ubc:bricol:erwin_diewert-2010-15
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    File URL: http://microeconomics.ca/erwin_diewert/dp1006.pdf
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    Citations

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    Cited by:

    1. FUKAO Kyoji & ARAI Sonoe, 2013. "Offshoring Bias in Japan's Manufacturing Sector," Discussion papers 13002, Research Institute of Economy, Trade and Industry (RIETI).
    2. Susan Houseman & Christopher Kurz & Paul Lengermann & Benjamin Mandel, 2011. "Offshoring Bias in U.S. Manufacturing," Journal of Economic Perspectives, American Economic Association, vol. 25(2), pages 111-132, Spring.
    3. Ana Aizcorbe & Tina Highfill, 2015. "Medical Care Expenditure Indexes for the US, 1980-2006," BEA Working Papers 0121, Bureau of Economic Analysis.
    4. Richard B. Freeman & Alice O. Nakamura & Leonard I. Nakamura & Marc Prud’homme & Amanda Pyman, 2011. "Wal‐Mart innovation and productivity: a viewpoint," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(2), pages 486-508, May.

    More about this item

    Keywords

    Offshoring; outsourcing; consumer price indexes; producer price indexes; intermediate input price indexes; bias in price indexes; Fisher index; total;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F1 - International Economics - - Trade

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