National Academy of Sciences

National Academy of Engineering

Institute of Medicine

National Research Council

The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences.

The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Wm. A. Wulf is president of the National Academy of Engineering.

The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine.

The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. Wm. A. Wulf are chairman and vice chairman, respectively, of the National Research Council.

The panel’s report is the result of the efforts of many people. The project was sponsored by the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor and also, in part, by the many federal agencies that support the Committee on National Statistics through the National Science Foundation. Throughout the study, the panel received unflagging cooperation from the dedicated staff of BLS. In particular Dennis Fixler (now with the Bureau of Economic Analysis, BEA) and John Greenlees gave generously of their time to educate the panel about the methodology and procedures of the Consumer Price Index. Former Commissioner Katharine Abraham, Mary McCarthy, Charles Mason, Ken Dalton, Dan Ginsburg, Walter Lane, Sylvia Leaver, and Paul Liegey attended meetings, gave briefings, or prepared research materials for the panel.

The panel is also indebted to others who made presentations on data and methodological issues, thereby helping us to develop a broad-based understanding of elements that go into the making of price and cost-of-living indexes: David Cutler, Harvard; John Astin, Eurostat; William Nordhaus, Yale; Alan Blinder, Princeton; and Ariel Pakes, Harvard, all served in this capacity. Others, including Kathleen Scholl, U.S. General Accounting Office; Mick Silver, Cardiff University; Tom Palley, AFL-CIO; and Joe Newhouse, Harvard, supplied the panel with helpful information and suggestions. We offer special thanks to Jack Triplett, formerly of BEA and BLS, for attending early meetings and using his long experience and deep knowledge of the major issues to help us get started and plot our course.

No panel with a task as difficult as ours could perform its duties without an excellent and well-managed staff: Andy White, director of the Committee on

National Statistics (CNSTAT) was responsible for seeing that this was the case. Miron Straf, the former director, was instrumental in developing the study. Project assistants Joshua Dick, Julia Kisa, and Michael Siri provided excellent administrative assistance. Constance Citro, senior project officer, provided experienced and wise counsel throughout the life of the panel. The report also benefitted substantially from the work of Eugenia Grohman, associate director for reports in the Division of Behavioral and Social Sciences and Education, who was responsible for editing the report and who also made valuable suggestions about its structure. We thank her for this and also for her role in overseeing the review process.

The panel owes an especial debt of gratitude to Christopher Mackie, CNSTAT study director for the project. He quickly absorbed the relevant professional literature and steeped himself in the issues. He helped organize our work, coordinated and provided insightful comments on papers and drafts covering a wide range of topics, contributed to our substantive discussions, drafted important parts of the report in cooperation with various panel members, and shepherded the report through the review process.

This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the Report Review Committee of the National Research Council (NRC). The purpose of this independent review is to provide candid and critical comments that will assist the institution in making the published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process.

We thank the following individuals for their participation in the review of this report: Ellen R. Dulberger, Business Strategy, IBM Global Services, Somers, NY; Charles Engel, Department of Economics, University of Wisconsin; Robert Feenstra, Department of Economics, University of California, Davis; Ariel Pakes, Department of Economics, Harvard University; Marshall Reinsdorf, Bureau of Economic Analysis, U.S. Department of Commerce; Matthew D. Shapiro, Department of Economics and Survey Research Center, University of Michigan; and Richard Valliant, Westat, Rockville, MD.

Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations; nor did they see the final draft of the report before its release. The review of this report was overseen by John Geweke, Department of Economics, University of Iowa, and Christopher Sims, Department of Economics, Princeton University. Appointed by the NRC, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered.

Responsibility for the final content of this report rests entirely with the authoring panel and the institution.

This report reflects the collective expertise and commitment of the individual members of the panel. All participated in the panel’s many meetings and discussions and in the drafting and reviewing of sections of the report. Each member brought a critical perspective and I thank them for their hard work and dedication to service for public benefit. Finally, the substance of this report and its many antecedents owe much to Zvi Griliches. He was a prominent contributor to the literature on many of the issues with which the panel wrestled, and he pioneered in exploring ways to deal with the thorniest issue of all, the problem of quality change. Zvi was a member of the panel but died November 4, 1999, shortly after the group began deliberations. I speak for the entire panel in saluting his monumental contributions in this area. We will miss him.

Charles L. Schultze, Chair

Panel on Conceptual, Measurement, and Other Statistical Issues in Developing Cost-of-Living Indexes

At What Price?

Conceptualizing and Measuring Cost-of-Living and Price Indexes