A Theory-Based Approach to Hedonic Price Regressions with Time-Varying Unobserved Product Attributes: The Price of Pollution
AbstractWe propose a new strategy for a pervasive problem in the hedonics literature—recovering hedonic prices in the presence of time-varying correlated unobservables. Our approach relies on an assumption about homebuyer rationality, under which prior sales prices can be used to control for time-varying unobservable attributes of the house or neighborhood. Using housing transactions data from California’s Bay Area between 1990 and 2006, we apply our estimator to recover marginal willingness to pay for reductions in three of the EPA’s “criteria” air pollutants. Our findings suggest that ignoring bias from time-varying correlated unobservables considerably understates the benefits of a pollution reduction policy.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15724.
Date of creation: Feb 2010
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Publication status: published as A Theory-Based Approach to Hedonic Price Regression s with Time-Varying Unobserved Product Attributes: The Price of Polluti on (with Jane Cooley, Kyoo- Il Kim, and Christopher Timmins), American Economic Review , 102(5), 1898- 2926, 2012.
Note: EEE IO PE
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- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
- Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-20 (All new papers)
- NEP-ECM-2010-02-20 (Econometrics)
- NEP-ENV-2010-02-20 (Environmental Economics)
- NEP-URE-2010-02-20 (Urban & Real Estate Economics)
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