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Spatial Hedonics And The Willingness To Pay For Residential Amenities

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  • Kenneth A. Small
  • Seiji S.C. Steimetz

Abstract

Housing rents may be influenced by characteristics of nearby properties, an effect captured by spatial autoregression in a hedonic rent equation. We investigate the implications of spatial autoregression for measuring the marginal welfare effects due to a change in a residential amenity such as air quality. We show that if spatial price interdependence arises from technological spillovers, such that utility depends directly on neighboring property values, then the welfare change is given by the reduced form of the autoregressive model, effectively applying a "spatial multiplier" to the relevant implicit price. If instead spatial interdependence arises from merely pecuniary spillovers, as is commonly supposed in motivating spatial autoregression, then no spatial multiplier on implicit prices is called for in computing welfare; but it is then especially important to use the autoregressive model to measure those implicit prices.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Regional Science.

Volume (Year): 52 (2012)
Issue (Month): 4 (October)
Pages: 635-647

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Handle: RePEc:bla:jregsc:v:52:y:2012:i:4:p:635-647

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  1. Kim, Chong Won & Phipps, Tim T. & Anselin, Luc, 1998. "Measuring The Benefits Of Air Quality Improvement: A Spatial Hedonic Approach," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20959, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Can, Ayse, 1992. "Specification and estimation of hedonic housing price models," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 453-474, September.
  3. Smith, V Kerry & Huang, Ju-Chin, 1995. "Can Markets Value Air Quality? A Meta-analysis of Hedonic Property Value Models," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 209-27, February.
  4. Dubin, Robin A, 1988. "Estimation of Regression Coefficients in the Presence of Spatially Autocorrelated Error Terms," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 466-74, August.
  5. Anselin, Luc, 2002. "Under the hood : Issues in the specification and interpretation of spatial regression models," Agricultural Economics, Blackwell, vol. 27(3), pages 247-267, November.
  6. Timothy J. Bartik, 2008. "Measuring the Benefits of Amenity Improvements in Hedonic Price Models," Book chapters authored by Upjohn Institute researchers, in: Joseph Herriges & Catherine L. Kling (ed.), Revealed Preference Approaches to Environmental Valuation, volume 0, pages 53-64 W.E. Upjohn Institute for Employment Research.
  7. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-65, July.
  8. 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..
  9. Kenneth Y. Chay & Michael Greenstone, 2005. "Does Air Quality Matter? Evidence from the Housing Market," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 376-424, April.
  10. Myrick Freeman, A. III, 1974. "On estimating air pollution control benefits from land value studies," Journal of Environmental Economics and Management, Elsevier, vol. 1(1), pages 74-83, May.
  11. Polinsky, A Mitchell, 1972. "Probabilistic Compensation Criteria," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 407-25, August.
  12. Small, Kenneth A, 1975. "Air Pollution and Property Values: Further Comment," The Review of Economics and Statistics, MIT Press, vol. 57(1), pages 105-07, February.
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Cited by:
  1. Swärdh, Jan-Erik & Andersson, Henrik & Jonsson, Lina & Ögren, Mikael, 2012. "Estimating non-marginal willingness to pay for railway noise abatement: application of the two-step hedonic regression technique," Working papers in Transport Economics 2012:27, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
  2. Jan Rouwendal & J. Willemijn van der Straaten, 2008. "The Costs and Benefits of Providing Open Space in Cities," Tinbergen Institute Discussion Papers 08-001/3, Tinbergen Institute.
  3. Andersson, Henrik & Jonsson, Lina & Ögren, Mikael, 2008. "Property Prices and Exposure to Multiple Noise Sources: Hedonic Regression with Road and Railway Noise," Working Papers 2008:10, Swedish National Road & Transport Research Institute (VTI).
  4. Hansen, Winslow D. & Naughton, Helen T., 2013. "The effects of a spruce bark beetle outbreak and wildfires on property values in the wildland–urban interface of south-central Alaska, USA," Ecological Economics, Elsevier, vol. 96(C), pages 141-154.
  5. Dubé, Jean & Legros, Diègo & Thériault, Marius & Des Rosiers, François, 2014. "A spatial Difference-in-Differences estimator to evaluate the effect of change in public mass transit systems on house prices," Transportation Research Part B: Methodological, Elsevier, vol. 64(C), pages 24-40.
  6. Price, James I. & McCollum, Daniel W. & Berrens, Robert P., 2010. "Insect infestation and residential property values: A hedonic analysis of the mountain pine beetle epidemic," Forest Policy and Economics, Elsevier, vol. 12(6), pages 415-422, July.

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