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# CHAPTER VI

# THE **CONPARATIVE MITS** OF **CENSUS** UNIT VALUES AND SPECIFICATION PRICING

It is sometimes suggested that unit values derived from census informat_on in the industry of origin approach are inherently inferior to specification pricing as practiced by the ICP expenditure approach, but we do not believe this to be the case.

# The Unit Value Problem

Specification pricing involves meticulous characterisation of the representative products. For consumer goods items, the ICP III exercise for 1975 provided a 462 page manual for the guidance of national statistical offices which was designed to ensure that the prices submitted should be for comparable products. This was supplemented by extensive research by the international secretariat on prices of capital goods. In our approach, by contrast. we do not solicit new information by questionnaire but use existing national censuses whose classification of products sometimes varies significantly. In some important cases the census breakdown of production is not disaggregated finely enough. A "product" for which we derive a unit value, may in practice be a mix of items, rather than a single item. This would not matter if the degree of disaggregation were uniform across countries, and if the mix and quality variaton for a "product" were similarly structured, but we know that such variations do exist.

The practical importance of the "unit value" problem in industry of origin comparisons, which is in fact a problem of matching heterogeneous items of different qualities, varies between industries. In the case of cement we come closest to the optimal situation of comparing more or less identical products across countries. Sugar, beer, tobacco products, tyres and grain mill products also pose no great problems. However, with textiles, radio and TV receivers and motor vehicles we clearly enter a different domain. To use the terminology of Gilbert and Kravis (1954, p. 79) we are dealing here with "common" products which have a similar function across the countries, but which vary in quality.

Our unit value specification was particularly poor in the case of motor vehicles, largely because of census confidentiality rules. The census information was therefore supplemented in this case by using information on output and consumer price structures from trade sources. Automotive News provides figures furnished by trade associations from trade sources which are rather reliable. The procedures are described in a note in the Statistical Appendix. Producer prices would have been preferable to consumer prices, but the US producer price index is based on information for only a limited number of models, and is as confidential as the census itself. Our method of handling the problem produced a reasonable though not an optimal adjustment for quality. In any case we would stress that our approach is not inferior to that of ICP for this particular industry. As the ICP approach is a multilateral one, its products have to be representative in a global sense. ICP III used passenger car models which were characteristic across its 34 countries, and its comparison for Brazil/USA and Mexico/USA was based largely on Japanese and European models which were quite unrepresentative of the situation in these three markets.