An alternative to the standard spatial econometric approaches in hedonic house price models
AbstractHedonic models are subject to spatially correlated errors which are a symptom of omitted spatial variables, mis-speciﬁcation or mismeasurement. Methods have been developed to address this problem through the use of spatial econometrics or spatial ﬁxed eﬀects. However, often spatial correlation is modeled without much consideration of the theoretical implications of the chosen model or treated as a nuisance to be dealt with holding little interest of its own. We discuss the limitations of current standard spatial approaches and demonstrate, both empirically and theoretically the generalized additive model as an alternative. The generalized additive model is compared with the spatial error model and the ﬁxed effects model. We ﬁnd the generalized additive model to be a solid alternative to the standard approaches, having less restrictive assumptions about the omitted spatial processes while still being able to reduce the problem of spatial autocorrelation and provide trustworthy estimates of spatial variables. However, challenges connected with spatially varying data remain. The choice of ﬂexibility in the spatial structure of the model affects estimated parameters of some spatially varying characteristics markedly. This suggests that omitted variable bias may remain an important problem. We advocate for an increased use of sensitivity analysis to determine robustness of estimates to different models of the (omitted) spatial processes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Copenhagen, Department of Food and Resource Economics in its series IFRO Working Paper with number 2013/18.
Length: 33 pages
Date of creation: Oct 2013
Date of revision:
hedonic valuation; spatial econometrics; generalized additive model;
Find related papers by JEL classification:
- Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
- R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
- R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-09 (All new papers)
- NEP-GEO-2013-11-09 (Economic Geography)
- NEP-URE-2013-11-09 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Martin D. Heintzelman & Carrie M. Tuttle, 2012. "Values in the Wind: A Hedonic Analysis of Wind Power Facilities," Land Economics, University of Wisconsin Press, vol. 88(3), pages 571-588.
- Bayer, Patrick & Keohane, Nathaniel & Timmins, Christopher, 2009.
"Migration and hedonic valuation: The case of air quality,"
Journal of Environmental Economics and Management,
Elsevier, vol. 58(1), pages 1-14, July.
- Patrick Bayer & Nathaniel Keohane & Christopher Timmins, 2006. "Migration and Hedonic Valuation: The Case of Air Quality," NBER Working Papers 12106, National Bureau of Economic Research, Inc.
- Waltert, Fabian & Schläpfer, Felix, 2010. "Landscape amenities and local development: A review of migration, regional economic and hedonic pricing studies," Ecological Economics, Elsevier, vol. 70(2), pages 141-152, December.
- Joshua K. Abbott & H. Allen Klaiber, 2011. "An Embarrassment of Riches: Confronting Omitted Variable Bias and Multi-Scale Capitalization in Hedonic Price Models," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1331-1342, November.
- 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.
- Kenneth Y. Chay & Michael Greenstone, 1998. "Does Air Quality Matter? Evidence from the Housing Market," NBER Working Papers 6826, National Bureau of Economic Research, Inc.
- Abbott, Joshua K. & Klaiber, H. Allen, 2010. "Is all space created equal? Uncovering the relationship between competing land uses in subdivisions," Ecological Economics, Elsevier, vol. 70(2), pages 296-307, December.
- Daniel P. McMillen, 2012. "Perspectives On Spatial Econometrics: Linear Smoothing With Structured Models," Journal of Regional Science, Wiley Blackwell, vol. 52(2), pages 192-209, 05.
- Luc Anselin & Nancy Lozano-Gracia, 2008. "Errors in variables and spatial effects in hedonic house price models of ambient air quality," Empirical Economics, Springer, vol. 34(1), pages 5-34, February.
- John F. Chamblee & Peter F. Colwell & Carolyn A. Dehring & Craig A. Depken, 2011. "The Effect of Conservation Activity on Surrounding Land Prices," Land Economics, University of Wisconsin Press, vol. 87(3), pages 453-472.
- Kuminoff, Nicolai V. & Parmeter, Christopher F. & Pope, Jaren C., 2010. "Which hedonic models can we trust to recover the marginal willingness to pay for environmental amenities?," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 145-160, November.
- Brounen, Dirk & Kok, Nils, 2011. "On the economics of energy labels in the housing market," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 166-179, September.
- Brett Day & Ian Bateman & Iain Lake, 2007. "Beyond implicit prices: recovering theoretically consistent and transferable values for noise avoidance from a hedonic property price model," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(1), pages 211-232, May.
- Patrick Walsh & J. Walter Milon & David Scrogin, 2010.
"The Spatial Extent of Water Quality Benefits in Urban Housing Markets,"
NCEE Working Paper Series
201002, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Mar 2010.
- Patrick J. Walsh & J. Walter Milon & David O. Scrogin, 2011. "The Spatial Extent of Water Quality Benefits in Urban Housing Markets," Land Economics, University of Wisconsin Press, vol. 87(4), pages 628-644.
- Luc Anselin, 2010. "Thirty years of spatial econometrics," Papers in Regional Science, Wiley Blackwell, vol. 89(1), pages 3-25, 03.
- Pope, Jaren C., 2008. "Buyer information and the hedonic: The impact of a seller disclosure on the implicit price for airport noise," Journal of Urban Economics, Elsevier, vol. 63(2), pages 498-516, March.
- Jean Cavailhès & Thierry Brossard & Jean-Christophe Foltête & Mohamed Hilal & Daniel Joly & François-Pierre Tourneux & Céline Tritz & Pierre Wavresky, 2009. "GIS-Based Hedonic Pricing of Landscape," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 44(4), pages 571-590, December.
- Gopalakrishnan, Sathya & Smith, Martin D. & Slott, Jordan M. & Murray, A. Brad, 2011. "The value of disappearing beaches: A hedonic pricing model with endogenous beach width," Journal of Environmental Economics and Management, Elsevier, vol. 61(3), pages 297-310, May.
- Tadao Hoshino & Koichi Kuriyama, 2010. "Measuring the Benefits of Neighbourhood Park Amenities: Application and Comparison of Spatial Hedonic Approaches," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 45(3), pages 429-444, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Geir Tveit).
If references are entirely missing, you can add them using this form.