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The excess burden associated to characteristics of the goods: Application to housing demand

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  • Amelia Bilbao
  • Celia Bilbao
  • José M. Labeaga

Abstract

This paper shows that conditional subsidies aimed at certain kinds of goods do not merely generate the traditional excess burden: there is an alternative welfare loss as the distortion affects good characteristics rather than prices. We provide empirical evidence of the welfare loss after estimating a linear hedonic price model and using predicted prices in a quadratic almost ideal demand system for housing characteristics. We identify the sources of the losses and we also provide a monetary measure that suggests that, under plausible parameter values, it can be quantitatively high.

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Paper provided by FEDEA in its series Working Papers with number 2005-09.

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Handle: RePEc:fda:fdaddt:2005-09

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  1. Follain, James R. & Jimenez, Emmanuel, 1985. "Estimating the demand for housing characteristics: A survey and critique," Regional Science and Urban Economics, Elsevier, vol. 15(1), pages 77-107, February.
  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. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  4. Hansen, Julia L. & Formby, John P. & Smith, W. James, 1996. "The Income Elasticity of Demand for Housing: Evidence from Concentration Curves," Journal of Urban Economics, Elsevier, vol. 39(2), pages 173-192, March.
  5. Wilhelmsson, Mats, 2002. "Household Expenditure Patterns for Housing Attributes: A Linear Expenditure System with Hedonic Prices," Journal of Housing Economics, Elsevier, vol. 11(1), pages 75-93, March.
  6. Bonnetain, Philippe, 2003. "A hedonic price model for islands," Journal of Urban Economics, Elsevier, vol. 54(2), pages 368-377, September.
  7. 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..
  8. Blundell & Robin, 1999. "Estimation in large and disaggregated demand systems : an estimator for conditionally linear systems," Working Papers 156380, Institut National de la Recherche Agronomique, France.
  9. Cheshire, Paul & Sheppard, Stephen, 1998. "Estimating the Demand for Housing, Land, and Neighbourhood Characteristics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(3), pages 357-82, August.
  10. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  11. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
  12. Ohsfeldt, Robert L. & Smith, Barton A., 1990. "Calculating elasticities from structural parameters in implicit markets," Journal of Urban Economics, Elsevier, vol. 27(2), pages 212-221, March.
  13. Arthur Lewbel, 2003. "A rational rank four demand system," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(2), pages 127-135.
  14. Bartik, Timothy J, 1987. "The Estimation of Demand Parameters in Hedonic Price Models," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 81-88, February.
  15. Salo, Sinikka, 1994. "Modelling the Finnish housing market," Economic Modelling, Elsevier, vol. 11(2), pages 250-265, April.
  16. Seko, Miki, 2002. "Nonlinear budget constraints and estimation: effects of subsidized home loans on floor space decisions in Japan," Journal of Housing Economics, Elsevier, vol. 11(3), pages 280-299, September.
  17. Palmquist, Raymond B, 1984. "Estimating the Demand for the Characteristics of Housing," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 394-404, August.
  18. Ohsfeldt, Robert L., 1988. "Implicit markets and the demand for housing characteristics," Regional Science and Urban Economics, Elsevier, vol. 18(3), pages 321-343, August.
  19. Diamond, Douglas Jr. & Smith, Barton A., 1985. "Simultaneity in the market for housing characteristics," Journal of Urban Economics, Elsevier, vol. 17(3), pages 280-292, May.
  20. James N. Brown & Harvey S. Rosen, 1982. "On the Estimation of Structural Hedonic Price Models," NBER Technical Working Papers 0018, National Bureau of Economic Research, Inc.
  21. Mendelsohn, Robert, 1984. "Estimating the Structural Equations of Implicit Markets and Household Production Functions," The Review of Economics and Statistics, MIT Press, vol. 66(4), pages 673-77, November.
  22. Palmquist, Raymond B., 1992. "Valuing localized externalities," Journal of Urban Economics, Elsevier, vol. 31(1), pages 59-68, January.
  23. Knight J. R. & Hill R. Carter & Sirmans C. F., 1993. "Estimation of Hedonic Housing Price Models Using Nonsample Information: A Monte Carlo Study," Journal of Urban Economics, Elsevier, vol. 34(3), pages 319-346, November.
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Cited by:
  1. Pedro N. Rodríguez, & Simón Sosvilla-Rivero, 2006. "Understanding and Forecasting Stock Price Changes," Working Papers 2006-03, FEDEA.
  2. Andrés J. Marchante Mera & Bienvenido Ortega Aguaza & José Sánchez Maldonado, 2006. "Las dimensiones del bienestar en las Comunidades Autónomas Españolas. Un análisis de Sigma y Gamma-Convergencia," Working Papers 2006-05, FEDEA.
  3. Corinne Mette, . "Wellbeing and dependency among European elderly: The role of social integration," Working Papers 2005-12, FEDEA.
  4. José M. Labeaga & Ester Martínez Ros, 2003. "Persistence And Ability In The Innovation Decisions," Business Economics Working Papers wb030101, Universidad Carlos III, Departamento de Economía de la Empresa.
  5. José M. Labeaga & Xisco Oliver & Amedeo Spadaro, . "Measuring Changes in Health Capital," Working Papers 2005-15, FEDEA.

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