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Estimating the Willingness to Pay to Avoid Violent Crime: A Dynamic Approach

  • Kelly C. Bishop
  • Alvin D. Murphy

The hedonic model, which has been used extensively in the Environmental, Urban, and Real Estate literatures, allows for the estimation of the implicit prices of housing and neighborhood attributes, as well as households' demand for these non-marketed amenities. A recognized drawback of the existing hedonic literature is that the models assume a myopic decision-maker. In this paper, we estimate a dynamic hedonic model and find that the average household is willing to pay $472 per year for a ten percent reduction in violent crime. In addition, we find that the traditional, myopic model suffers from a 21 percent negative bias.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.625
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 3 (May)
Pages: 625-29

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:625-29
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  1. Hotz, V.J. & Miller, R.A., 1991. "Conditional Choice Probabilities and the Estimation of Dynamic Models," GSIA Working Papers 1992-12, Carnegie Mellon University, Tepper School of Business.
  2. Ekeland, Ivar & Heckman, James J. & Nesheim, Lars, 2003. "Identification and Estimation of Hedonic Models," IZA Discussion Papers 853, Institute for the Study of Labor (IZA).
  3. Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2011. "A Dynamic Model of Demand for Houses and Neighborhoods," NBER Working Papers 17250, National Bureau of Economic Research, Inc.
  4. 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..
  5. 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.
  6. 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.
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