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Estimating the Willingness to Pay to Avoid Violent Crime: A Dynamic Approach

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  • Kelly C. Bishop
  • Alvin D. Murphy
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    Abstract

    The hedonic model, which has been used extensively in the Environmental, Urban, and Real Estate literatures, allows for the estimation of the implicit prices of housing and neighborhood attributes, as well as households' demand for these non-marketed amenities. A recognized drawback of the existing hedonic literature is that the models assume a myopic decision-maker. In this paper, we estimate a dynamic hedonic model and find that the average household is willing to pay $472 per year for a ten percent reduction in violent crime. In addition, we find that the traditional, myopic model suffers from a 21 percent negative bias.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.625
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 101 (2011)
    Issue (Month): 3 (May)
    Pages: 625-29

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    Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:625-29

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    1. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2004. "Identification and Estimation of Hedonic Models," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S60-S109, February.
    2. Hotz, V.J. & Miller, R.A., 1991. "Conditional Choice Probabilities and the Estimation of Dynamic Models," GSIA Working Papers 1992-12, Carnegie Mellon University, Tepper School of Business.
    3. Bartik, Timothy J, 1987. "The Estimation of Demand Parameters in Hedonic Price Models," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 81-88, February.
    4. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
    5. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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    Cited by:
    1. Banzhaf, H. Spencer & Farooque, Omar, 2013. "Interjurisdictional housing prices and spatial amenities: Which measures of housing prices reflect local public goods?," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 635-648.
    2. Kelly C. Bishop & Christopher Timmins, 2011. "Hedonic Prices and Implicit Markets: Estimating Marginal Willingness to Pay for Differentiated Products Without Instrumental Variables," NBER Working Papers 17611, National Bureau of Economic Research, Inc.

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