Quality Measurement in Economics: New Perspectives on the Evolution of Goods and Services.

• Author: Gamble, Ralph

One of the most popular water-cooler topics around the local economics shop concerns the firm's choice along the quality dimension. The topic generates interesting speculations, such as: Are there rules and principles which govern the choice of quality of product, such as distance of selling points from repair points, size of dealer networks, entry conditions, degree of market penetration, and so on? Do publicly-owned firms satisfy the tastes and preferences of shareholders with regard to the quality-cost tradeoff? Is there a profit function with quality of product as an argument, with a unique, global maximum that all surviving firms approach? Is quality change predictive, stochastic, or chaotic?

This book addresses some of these questions in Chapters 6 and 7, chapters which deal with long run price and quality changes. Even though these interesting topics are given short shrift, the book belongs in the libraries of most I/O, macro, and applied (business) economists, if for no other reasons than its clear exposition of some of the methodologies of valuing quality changes over time, the illustration of quality-change calculations by way of a full-blown example, and the inclusion of an extensive bibliography.

The author's method of choice is that of the Representative Good Approach (RGA), which is a variation and improvement over price-linking methods of valuation of quality changes. RGA is...