Takanobu Nakajima

(Senior Research Fellow, Cabinet Office, Government of Japan)

One of the urgent problems the Japanese economy is confronted with is understood how to raise the productivity of service industries which have more than 70% share in the total economy. The real problem in the current situation, however, is that the solution goes to a superficial and ad-hoc development of productivity improvement programs, but not to the fundamental discussion and research on service output definition and measurement. In the world of no regulation and no market failures, commercial firms of service industries would trace the same road to improve productivity as manufacturing firms.

In this paper we refer to Hayashi(1985)'s idea of treating services as durable goods and Diewert-Wykoff(2007)'s theoretical framework of capital goods pricing model, and present a simple methodology of how to extract the contribution of consumer's evaluation change from the service price change. The key issue is to capture the consumer's evaluation change caused by external environmental change. The reason that shopping arcades in the downtown become desolate is not necessarily quality advancement of large superstores but consumer's preference change of shopping and communication ways. In this case, we will show, an ordinary Hedonic approach, which basically relies on supply side information, brings biased estimates of price changes and leads to false productivity indicators.