mate was based on back-of-the-envelope calculations on the effect of increased longevity and, in turn, reduced depreciation rates, on annual operation costs. Triplett (1997), as well as Moulton and Moses, argues that the commission did not have accurate information about measures that BLS has implemented to take into account improved automobile quality. The Boskin commission also estimated a 0.25 percent annual bias associated with CPI pricing of motor fuel, which was attributed to failure of the CPI to capture convenience and time savings associated with automatic credit card readers at gas stations. Moulton and Moses offer their own back-of-the-envelope calculations, based on assumptions about the value of consumers’ time, time savings created by the machines, and average purchase size and find a bias about half as large.

Medical Care The Boskin commission’s estimate of bias in the medical services index, 3.0 percent for both professional medical services and hospital and related services, is imputed largely from two empirical studies—Shapiro and Wilcox (1996) on treatment of cataracts and Cutler et al. (1996) on treatment for heart attacks. Thus, though Moulton and Moses agree that there is upward bias in the medical index, the validity of the commission’s estimate ultimately depends not only on the accuracy of these specific results but also on the extent to which the studied services are representative of the sector. Work by Berndt et al. (1996) and Griliches and Cockburn (1996) for prescription pharmaceuticals—for which the Boskin commission estimated a 2.0 percent per year bias—led BLS, in 1995, to change its method of pricing prescription drugs when generic versions become available. Also, beginning in January 1997, BLS adopted the PPI (Producer Price Index) method of pricing treatment-based bundles of hospital services. Both these measures reduced biases associated with measurement of medical service categories, although it likely did not eliminate them.

Other Goods and Services The estimated biases associated with items other than those noted above were generally minor in terms of their impact on the all-item CPI. The Boskin commission suggested a 2.0 percent bias in sporting equipment and toys; small appliances such as hair dryers were assigned the same bias as large appliances, 3.0 percent per year. Personal financial services, a category for which output is extremely difficult to measure and rapid technological change (e.g., proliferation of ATMs and on-line account management) has occurred, the commission “conservatively” estimated an annual bias of 2.0 percent. The commission also discussed cellular phones but, as Moulton and Moses (1997:321) point out, it is not completely clear whether or not they included this in their estimated 1.0 percent bias for the “other utilities, including telephone” category.



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