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Willingness to pay for water and location bias in hedonic price analysis: evidence from the Indonesian housing market

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  • YUSUF, ARIEF ANSHORY
  • KOUNDOURI, PHOEBE

Abstract

Hedonic valuation of quality attributes can be misleading when the assumption that these attributes are exogenous to sample selection is violated. This paper considers the simultaneity between hedonic valuation and sample selection in the context of a model of consumer behavior over packaged goods and investigates empirically how the decision on house location (urban/rural) affects the household's valuation of water-related characteristics of the house in question. The empirical analysis uses data from the Indonesian housing market and suggests that households value access to safe and improved domestic water sources. However, failing to correct for sample selection results in a biased valuation of willingness to pay for house characteristics. This might misguide policy recommendations for improved provision of domestic water, based on cost–benefit analysis.

Suggested Citation

  • Yusuf, Arief Anshory & Koundouri, Phoebe, 2005. "Willingness to pay for water and location bias in hedonic price analysis: evidence from the Indonesian housing market," Environment and Development Economics, Cambridge University Press, vol. 10(6), pages 821-836, December.
    • Handle: RePEc:cup:endeec:v:10:y:2005:i:06:p:821-836_00
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    Citations

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    Cited by:

    1. José Armando Cobián Álvarez & Budy P. Resosudarmo, 2019. "The cost of floods in developing countries’ megacities: a hedonic price analysis of the Jakarta housing market, Indonesia," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 21(4), pages 555-577, October.
    2. Leiva, Benjamin & Van Houtven, George & Vásquez, William F. & Nájera, Andrea, 2023. "Valuing water service reliability and in-home water storage: A hedonic price model from Guatemala," Utilities Policy, Elsevier, vol. 82(C).
    3. Vásquez, William F., 2011. "Household preferences and governance of water services: A hedonic analysis from rural Guatemala," IFPRI discussion papers 1152, International Food Policy Research Institute (IFPRI).
    4. Djoni Hartono & Bilang Nauli Harahap, 2007. "Willingness to Pay for Drinking Water and Sanitation Availability in Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 200712, Department of Economics, Padjadjaran University, revised Nov 2007.
    5. Ngawang Dendup & Kuenzang Tshering, 2018. "Demand for piped drinking water and a formal sewer system in Bhutan," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(3), pages 681-703, July.
    6. Caroline Berg & Céline Nauges, 2012. "The willingness to pay for access to piped water: a hedonic analysis of house prices in Southwest Sri Lanka," Letters in Spatial and Resource Sciences, Springer, vol. 5(3), pages 151-166, October.
    7. Francisco González Gómez & Jorge Guardiola & Edna Guidi Gutiérrez, 2012. "Willingness to pay more for water in a climate of confrontation: The case of Sucre, Bolivia," Working Papers. Serie EC 2012-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    8. Arief Anshory Yusuf, 2006. "Constructing Indonesian Social Accounting Matrix for Distributional Analysis in the CGE Modelling Framework," Working Papers in Economics and Development Studies (WoPEDS) 200604, Department of Economics, Padjadjaran University, revised Nov 2006.
    9. Yusuf, Arief Anshory & Resosudarmo, Budy P., 2009. "Does clean air matter in developing countries' megacities? A hedonic price analysis of the Jakarta housing market, Indonesia," Ecological Economics, Elsevier, vol. 68(5), pages 1398-1407, March.
    10. Zhang, Fan & Fogarty, James, 2015. "Nonmarket Valuation of Water Sensitive Cities: Current Knowledge and Issues," Working Papers 207694, University of Western Australia, School of Agricultural and Resource Economics.
    11. Jie-Sheng Tan Soo, 2018. "Valuing Air Quality in Indonesia Using Households’ Locational Choices," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(3), pages 755-776, November.
    12. Ekin Birol & Phoebe Koundouri & Yiannis Kountouris, 2008. "Using Economic Valuation Techniques to Inform Water Resources Management in the Southern European, Mediterranean and Developing Countries: A Survey and Critical Appraisal of Available Techniques," DEOS Working Papers 0806, Athens University of Economics and Business.
    13. Yusep Suparman & Henk Folmer & Johan Oud, 2014. "Hedonic price models with omitted variables and measurement errors: a constrained autoregression–structural equation modeling approach with application to urban Indonesia," Journal of Geographical Systems, Springer, vol. 16(1), pages 49-70, January.

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