Probit regression: Potatoes

Introduction

The standard of living in developed countries grew considerably in the twentieth century. One reason has been the steady introduction of new goods and improvement in other goods. The standard of living for the U.S. population has increased during the past century due to the invention and adoption of many new goods (and services). Because of new technology, goods have improved in quality and new goods have been introduced, both frequently increasing social welfare.

New goods and quality improvements have caused a major revision of the Consumer Price Index (CPI). The CPI was biased upwards by approximately 0.6 percent per year (Boskin et al, 1998, pp. 5-77), and estimates of increases in the prices of individuals goods have also been shown to be biased upwards by ignoring the effect of new products (Hausman, 1996). This bias estimate could be thought of as a lower bound on how much better off consumers are due to the introduction of new goods – which means that new goods and services alone caused welfare of U.S. citizens to (at least) double in the twentieth century.