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Using stochastic frontier models to mitigate omitted variable bias in hedonic pricing models: A case study for air quality in Bogotá, Colombia

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  • Carriazo, Fernando
  • Ready, Richard
  • Shortle, James

Abstract

Hedonic pricing models use property value differentials to value changes in environmental quality. If unmeasured quality attributes of residential properties are correlated with an environmental quality measure of interest, conventional methods for estimating implicit prices will be biased. Because many unmeasured quality measures tend to be asymmetrically distributed across properties, it may be possible to mitigate this bias by estimating a heteroskedastic frontier regression model. This approach is demonstrated for a hedonic price function that values air quality in Bogotá, Colombia.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ecolec:v:91:y:2013:i:c:p:80-88
    DOI: 10.1016/j.ecolecon.2013.04.005
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    Cited by:

    1. Fernando Carriazo & Julian Peñaranda, 2015. "The Effect of Commuting Costs to Employment Centers on Urban Property Values: A Spatial Analysis in Bogotá, Colombia," Documentos CEDE 13133, Universidad de los Andes, Facultad de Economía, CEDE.
    2. Chakraborti, Lopamudra & Heres, David & Hernandez, Danae, 2019. "Are land values related to ambient air pollution levels? Hedonic evidence from Mexico City," Environment and Development Economics, Cambridge University Press, vol. 24(3), pages 252-270, June.
    3. Alessandro Bonanno & Francesco Bimbo & Marco Costanigro & Alfons Oude Lansink & Rosaria Viscecchia, 2019. "Credence attributes and the quest for a higher price – a hedonic stochastic frontier approach," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 46(2), pages 163-192.
    4. Stefan Seifert & Christoph Kahle & Silke Hüttel, 2021. "Price Dispersion in Farmland Markets: What Is the Role of Asymmetric Information?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(4), pages 1545-1568, August.
    5. Chad M. Baum, 2013. "The Missing Link between Research and Reality: the significance of the relationship between retail format and organic food consumption," Jena Economics Research Papers 2013-049, Friedrich-Schiller-University Jena.
    6. Wolf, David & Klaiber, H. Allen, 2017. "Bloom and bust: Toxic algae's impact on nearby property values," Ecological Economics, Elsevier, vol. 135(C), pages 209-221.
    7. Carriazo, Fernando & Gomez, John Alexander, 2015. "The Demand for Air Quality: A Case study in Bogotá, Colombia," Documentos CEDE Series 212855, Universidad de Los Andes, Economics Department.
    8. Fernando Carriazo & John Alexander Gomez, 2015. "The Demand for Air Quality: A Case study in Bogotá, Colombia," Documentos CEDE 14071, Universidad de los Andes, Facultad de Economía, CEDE.

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    More about this item

    Keywords

    Hedonic pricing model; Omitted variables; Air quality; Stochastic frontier model;
    All these keywords.

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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