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Using Frontier Models to Mitigate Omitted Variable Bias in Hedonic Pricing Models: A Case Study for Air Quality in Bogotá, Colombia

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  • Fernando Carriazo
  • Richard Ready
  • James Shortle

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

  • Fernando Carriazo & Richard Ready & James Shortle, 2011. "Using Frontier Models to Mitigate Omitted Variable Bias in Hedonic Pricing Models: A Case Study for Air Quality in Bogotá, Colombia," Documentos CEDE 8736, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:008736
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    References listed on IDEAS

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    1. Jeffrey E. Zabel & Katherine A. Kiel, 2000. "Estimating the Demand for Air Quality in Four U.S. Cities," Land Economics, University of Wisconsin Press, vol. 76(2), pages 174-194.
    2. Julie Mueller & John Loomis & Armando González-Cabán, 2009. "Do Repeated Wildfires Change Homebuyers’ Demand for Homes in High-Risk Areas? A Hedonic Analysis of the Short and Long-Term Effects of Repeated Wildfires on House Prices in Southern California," The Journal of Real Estate Finance and Economics, Springer, vol. 38(2), pages 155-172, February.
    3. World Bank, 2006. "Republic of Colombia," World Bank Publications - Reports 33924, The World Bank Group.
    4. Sudip Chattopadhyay, 1999. "Estimating the Demand for Air Quality: New Evidence Based on the Chicago Housing Market," Land Economics, University of Wisconsin Press, vol. 75(1), pages 22-38.
    5. Katherine Kiel & Jeffrey Zabel, 2000. "Estimating the Demand for Air Quality in Four U.S. Cities," Working Papers 0009, College of the Holy Cross, Department of Economics.
    6. Okmyung Biny & Stephen Polasky, 2004. "Effects of Flood Hazards on Property Values: Evidence Before and After Hurricane Floyd," Land Economics, University of Wisconsin Press, vol. 80(4).
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    Cited by:

    1. Wilmar Alexander Cabrera-Rodríguez & Juan Sebastián Mariño-Montaña & Carlos Andrés Quicazán-Moreno, 2019. "Modelos hedónicos con efectos espaciales: una aproximación al cálculo de índices de precios de vivienda para Bogotá," Borradores de Economia 1072, Banco de la Republica de Colombia.
    2. 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.
    3. Jessica Castaño & Mariana Laverde & Miguel Ángel Morales Mosquera & Ana María Yaruro, 2013. "Índice de Precios de la Vivienda Nueva para Bogotá: Metodología de Precios Hedónicos," Temas de Estabilidad Financiera 078, Banco de la Republica de Colombia.
    4. Damrongsak Rinchumphu & Chris Eves & Connie Susilawati, 2013. "Brand Value of Property in Bangkok Metropolitan Region (BMR), Thailand," International Real Estate Review, Global Social Science Institute, vol. 16(3), pages 296-322.

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    More about this item

    Keywords

    hedonic pricing model; omitted variables; air quality; 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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