The specification of an industry value-added price and quantity index pair

The proper specification of an industry value-added price and quantity index pair is essential to accurately measuring inflation-adjusted growth rates among the industries that comprise the nation's Gross Domestic Product. The current literature in this area does not offer industry value-added index pairs that are both theoretically defensible and empirically sound. This research develops preferred value-added index pairs following a production-based approach. By drawing from both the production and the aggregation literatures, this research uses the techniques of production and index-number theory to solve a representative industry's value-added aggregation problem---that is, the choice problem in which an industry identifies how its primary inputs (value-added inputs; capital and labor) and its secondary inputs (energy, materials, and services) combine to produce output. The resulting value-added index pairs are examined empirically and are shown to perform well under a variety of economic conditions, including conditions under which traditional and contemporary measurement approaches have commonly failed.