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Estimation And Hypothesis Testing For Nonparametric Hedonic House Price Functions

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  • Daniel P. McMillen
  • Christian L. Redfearn

Abstract

In contrast to the rigid structure of standard parametric hedonic analysis, nonparametric estimators control for misspecified spatial effects while using highly flexible functional forms. Despite these advantages, nonparametric procedures are still not used extensively for spatial data analysis due to perceived difficulties associated with estimation and hypothesis testing. We demonstrate that nonparametric estimation is feasible for large datasets with many independent variables, offering statistical tests of individual covariates and tests of model specification. We show that fixed parameterization of distance to the nearest rapid transit line is a misspecification and that pricing of access to this amenity varies across neighborhoods within Chicago. Copyright (c) 2010 Wiley Periodicals, Inc.

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  • Daniel P. McMillen & Christian L. Redfearn, 2010. "Estimation And Hypothesis Testing For Nonparametric Hedonic House Price Functions," Journal of Regional Science, Wiley Blackwell, vol. 50(3), pages 712-733.
  • Handle: RePEc:bla:jregsc:v:50:y:2010:i:3:p:712-733
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    References listed on IDEAS

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    1. Daniel P. McMillen, 2004. "Employment Densities, Spatial Autocorrelation, and Subcenters in Large Metropolitan Areas," Journal of Regional Science, Wiley Blackwell, vol. 44(2), pages 225-244.
    2. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-954, July.
    3. Daniel P. McMillen & John McDonald, 2004. "Reaction of House Prices to a New Rapid Transit Line: Chicago's Midway Line, 1983-1999," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(3), pages 463-486, September.
    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. Steven Farber & Antonio Páez, 2007. "A systematic investigation of cross-validation in GWR model estimation: empirical analysis and Monte Carlo simulations," Journal of Geographical Systems, Springer, vol. 9(4), pages 371-396, December.
    6. Redfearn, Christian L., 2009. "How informative are average effects? Hedonic regression and amenity capitalization in complex urban housing markets," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 297-306, May.
    7. Richard Meese & Nancy Wallace, 1991. "Nonparametric Estimation of Dynamic Hedonic Price Models and the Construction of Residential Housing Price Indices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 308-332.
    8. McMillen, Daniel P., 1996. "One Hundred Fifty Years of Land Values in Chicago: A Nonparametric Approach," Journal of Urban Economics, Elsevier, vol. 40(1), pages 100-124, July.
    9. Halvorsen, Robert & Pollakowski, Henry O., 1981. "Choice of functional form for hedonic price equations," Journal of Urban Economics, Elsevier, vol. 10(1), pages 37-49, July.
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