MEASURING PRICE AND PRODUCTIVITY CHANGE IN THE AIRCRAFT INDUSTRY

The study examines the problems and issues involved in estimating price and productivity change in the aircraft industry. Price indexes are derived by using pounds of airframe weight as the measure of output for aircraft and parts and pounds of thrust for the engines. These indexes are combined to provide a single aircraft industry price index. Estimates of productivity change are made using a constant elasticity of substitution production function. Constant returns to scale are assumed, and the estimate of the production function scaling factor is taken as the measure of productivity. Assuming various positive annual rates of quality change flattens out the trend line for both the price index and the productivity index. An assumed rate of about 12 percent per year would eliminate the trend in both the price index and the productivity index. Changes in output price are seemingly the result of changes in quality and productivity more than of changes in input price. (Author)