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Hedonic Vices: Fixing Inferences about Willingness to Pay in Recent House-Value Studies1

Published online by Cambridge University Press:  20 November 2015

John Yinger  and
Phuong Nguyen-Hoang
John Yinger*
Affiliation:
Economics and Public Administration, The Maxwell School, Syracuse University, NY 13244, USA, e-mail: [email protected]
Phuong Nguyen-Hoang
Affiliation:
School of Urban and Regional Planning, Public Policy Center, University of Iowa, IA 52242, USA
*
*e-mail: [email protected]
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Abstract

A key tool for studying the demand for neighborhood amenities and estimating the benefits from amenity improvements is a regression of house value on amenity levels, controlling for housing characteristics. Several scholars have developed methods to address the methodological challenges, such as endogeneity, faced by these “hedonic” regressions. Unfortunately, however, some recent studies neglect basic principles of hedonic estimation in Rosen [(1974). Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition. Journal of Political Economy, 82 (1), 34–55]. After providing conceptual background, this article explains these hedonic “vices” and how to avoid them. We focus on inappropriate functional forms, inappropriate control variables, and misinterpretation of hedonic regression results. Our analysis is supported using data from the Cleveland area in 2000 and a simulation model.

Keywords

H75R2capitalizationhedonicshouse valuesneighborhood amenitiesschool quality
Type
Articles
Information
Journal of Benefit-Cost Analysis , Volume 7 , Issue 2 , Summer 2016 , pp. 248 - 291
Copyright
© Society for Benefit-Cost Analysis 2015 

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