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On the theoretical derivation of a functional form for the hedonic price function

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  • Lisi, Gaetano

Abstract

The key issue in the hedonic price theory is that although the literature emphasises the intrinsic nonlinearity in the relationship between house prices and housing characteristics, very little theoretical guidance is provided regarding the more appropriate mathematical specification for the hedonic price function. Thus, most empirical studies make use of flexible functional forms or simple linear models which possess a direct economic meaningfulness. This theoretical paper fills this gap by using the Mortensen-Pissarides matching model to show both the nonlinearity of the hedonic price function and the more appropriate functional relationship between prices and attributes.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37066.

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Date of creation: 26 Feb 2012
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Handle: RePEc:pra:mprapa:37066

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Keywords: hedonic price theory; hedonic price function; search and matching process;

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References

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  1. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  2. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2004. "Identification and Estimation of Hedonic Models," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(S1), pages S60-S109, February.
  3. Charles Ka-Yui Leung & Youngman Chun Fai Leong & Siu Kei Wong, 2005. "Housing Price Dispersion: An Empirical Investigation," Departmental Working Papers, Chinese University of Hong Kong, Department of Economics _167, Chinese University of Hong Kong, Department of Economics.
  4. Genesove, David & Han, Lu, 2010. "Search and Matching in the Housing Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7777, C.E.P.R. Discussion Papers.
  5. Stephen Malpezzi, . "Hedonic Pricing Models: A Selective and Applied Review," Wisconsin-Madison CULER working papers, University of Wisconsin Center for Urban Land Economic Research 02-05, University of Wisconsin Center for Urban Land Economic Research.
  6. Kuminoff, Nicolai V. & Parmeter, Christopher F. & Pope, Jaren C., 2008. "Hedonic Price Functions: Guidance On Empirical Specification," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 6555, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. John P. Harding & Stuart S. Rosenthal & C. F. Sirmans, 2003. "Estimating Bargaining Power in the Market for Existing Homes," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 178-188, February.
  8. Brown, Jeff E. & Ethridge, Don E., 1995. "Functional Form Model Specification: An Application To Hedonic Pricing," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, Northeastern Agricultural and Resource Economics Association, vol. 24(2), October.
  9. John P. Harding & John R. Knight & C.F. Sirmans, 2003. "Estimating Bargaining Effects in Hedonic Models: Evidence from the Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 31(4), pages 601-622, December.
  10. Brian Petereson, 2009. "Fooled by Search: Housing Prices, Turnover and Bubbles," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2009-004, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  11. Charles Ka Yui Leung & Jun Zhang, 2011. "¡§Fire Sales¡¨ in Housing Market: Is the House- Search Process Similar to a Theme Park Visit?," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 14(3), pages 311-329.
  12. Harry Haupt & Joachim Schnurbus & Rolf Tschernig, 2010. "On nonparametric estimation of a hedonic price function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 25(5), pages 894-901.
  13. Daniel J. Henderson & Christopher F. Parmeter & Subal C. Kumbhakar, 2007. "Nonparametric estimation of a hedonic price function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 22(3), pages 695-699.
  14. Can, Ayse, 1992. "Specification and estimation of hedonic housing price models," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 22(3), pages 453-474, September.
  15. Anglin, Paul M & Gencay, Ramazan, 1996. "Semiparametric Estimation of a Hedonic Price Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(6), pages 633-48, Nov.-Dec..
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