7.4 Hedonic Property Method - Hedonic Property Method for es2ma2ng WTP VALUING BENEFITS REVEALED PREFERENCE METHODS Valuing Bene\ufb01ts Revealed

# 7.4 Hedonic Property Method - Hedonic Property Method...

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Hedonic Property Method for es2ma2ng WTP VALUING BENEFITS: REVEALED PREFERENCE METHODS Valuing Benefits: Revealed Preference Methods
Hedonic Property Prices Housing is another composite good Environmental ameni=es, neighborhood characteris=cs are all capitalized into a home price. Hedonic property methods seek to isolate a given aDribute in the same way that hedonic wage studies look at jobs Hazardous waste Noise Visibility Air and water contamina=on Crime Valuing Benefits: Revealed Preference Methods
Size of the Lot Number of Bedrooms Age of House Number of Bathrooms Water Quality Distance to Airport or City Center Construction Type Property Value Total Square Feet Garage/Basement Other Environmental Amenities Common Components of Hedonic Property Prices Valuing Benefits: Revealed Preference Methods
Hedonic equilibrium considering the supply The hedonic price func=on comes from the equilibrium of demand and supply of housing. Both are considered exogenous. Sellers have isoprofit curves (π)‏ Buyers have indifference curves (U) Just like with risks and jobs, buyers and sellers find mutually-agreeable terms The resul=ng set of purchases is our hedonic price func=on 4 Housing price characteristic U i U k Buyers π a π b Sellers Valuing Benefits: Revealed Preference Methods
Model es=mate Func=onal form needs to be assumed. Common func=onal forms are linear, the semi-log: The coeﬃcients of the regression func=on give the implicit price, in natural logarithm terms, of the characteris=cs of the house The implicit price can be es=mated for specific value of the characteris=cs of houses (for example, the average value) For the semi-log func=on, the implicit price of x 1 is given by: β 1 gives the percentage change in the price of housing given a unit change in x 1 We usually es=mate the implicit price at the average value of housing Log-Log forms are also used – we’ll see it in an applied example 5 i ki k i i i x x x p ε β β β α + + + + + = ... ln 2 2 1 1 1 1 β p x p = Valuing Benefits: Revealed Preference Methods