This study evaluates existing methods for developing price indices for defense products, proposes an alternative method based on hedonic analysis, and develops price indices for U.S . Army vehicles using the proposed method. Prices indices are estimated for combat vehicles, and trucks and trailers. The period covered is 1981 through 1985. The estimated hedonic price indices show that for trucks and trailers existing historical price indices significantly understate inflation. The estimated hedonic index is 4 to 6 times higher than comparable indices in all years except 1985. In 1985, the index reflected significant deflation which placed it well below comparable indices. The deflation experienced during this period may have, in part, been due to the enactment of the Competition in Contracting Act in 1984. This Act dramatically increased competition for Government contracts. It was not possible to estimate price indices for combat vehicles due to the paucity of data. However, should additional price and attribute data become available it is believed that price indices can be developed using the hedonic approach. Based on the results of this study it is obvious that existing methods for developing price indices are not optimum and hedonic analysis is a viable method for constructing price indices for selected applications. / M.A.