A Rational Expectations Approach to Hedonic Price Regressions with Time-Varying Unobserved Product Attributes: The Price of Pollution
AbstractWe propose a new strategy for a pervasive problem in the hedonics literature: recovering hedonic prices in the presence of time-varying correlated unobservables. Our approach relies on an assumption about home buyer rationality, under which prior sales prices can be used to control for time-varying unobservable attributes of the house or neighborhood. Using housing transactions data from California's Bay Area between 1990 and 2006, we apply our estimator to recover marginal willingness to pay for reductions in three of the EPA's "criteria" air pollutants. Our findings suggest that ignoring bias from time-varying correlated unobservables considerably understates the benefits of a pollution reduction policy. (JEL D12, D84, Q53, Q58, R21)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 102 (2012)
Issue (Month): 5 (August)
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
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- Linn, Joshua, 2013.
"The effect of voluntary brownfields programs on nearby property values: Evidence from Illinois,"
Journal of Urban Economics,
Elsevier, vol. 78(C), pages 1-18.
- Linn, Joshua, 2012. "The Effect of Voluntary Brownfields Programs on Nearby Property Values: Evidence from Illinois," Discussion Papers dp-12-35, Resources For the Future.
- Walls, Margaret & Kousky, Carolyn & Chu, Ziyan, 2013. "Is What You See What You Get? The Value of Natural Landscape Views," Discussion Papers dp-13-25, Resources For the Future.
- Carriazo, Fernando & Ready, Richard & Shortle, James, 2013. "Using stochastic frontier models to mitigate omitted variable bias in hedonic pricing models: A case study for air quality in Bogotá, Colombia," Ecological Economics, Elsevier, vol. 91(C), pages 80-88.
- Arik Levinson, 2013. "Happiness as a Public Policy Tool," Working Papers gueconwpa~13-13-04, Georgetown University, Department of Economics.
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