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Using stochastic frontier models to mitigate omitted variable bias in hedonic pricing models: A case study for air quality in Bogotá, Colombia

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  • Carriazo, Fernando
  • Ready, Richard
  • Shortle, James

Abstract

Hedonic pricing models use property value differentials to value changes in environmental quality. If unmeasured quality attributes of residential properties are correlated with an environmental quality measure of interest, conventional methods for estimating implicit prices will be biased. Because many unmeasured quality measures tend to be asymmetrically distributed across properties, it may be possible to mitigate this bias by estimating a heteroskedastic frontier regression model. This approach is demonstrated for a hedonic price function that values air quality in Bogotá, Colombia.

Suggested Citation

  • Carriazo, Fernando & Ready, Richard & Shortle, James, 2013. "Using stochastic frontier models to mitigate omitted variable bias in hedonic pricing models: A case study for air quality in Bogotá, Colombia," Ecological Economics, Elsevier, vol. 91(C), pages 80-88.
  • Handle: RePEc:eee:ecolec:v:91:y:2013:i:c:p:80-88
    DOI: 10.1016/j.ecolecon.2013.04.005
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    References listed on IDEAS

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    Cited by:

    1. Fernando Carriazo & Julian Peñaranda, 2015. "The Effect of Commuting Costs to Employment Centers on Urban Property Values: A Spatial Analysis in Bogotá, Colombia," Documentos CEDE 013133, Universidad de los Andes - CEDE.
    2. Wolf, David & Klaiber, H. Allen, 2017. "Bloom and bust: Toxic algae's impact on nearby property values," Ecological Economics, Elsevier, vol. 135(C), pages 209-221.
    3. Carriazo, Fernando & Gomez, John Alexander, 2015. "The Demand for Air Quality: A Case study in Bogotá, Colombia," Documentos CEDE Series 212855, Universidad de Los Andes, Economics Department.
    4. Chakraborti, Lopamudra & Heres, David & Hernandez, Danae, 2019. "Are land values related to ambient air pollution levels? Hedonic evidence from Mexico City," Environment and Development Economics, Cambridge University Press, vol. 24(3), pages 252-270, June.
    5. Alessandro Bonanno & Francesco Bimbo & Marco Costanigro & Alfons Oude Lansink & Rosaria Viscecchia, 2019. "Credence attributes and the quest for a higher price – a hedonic stochastic frontier approach," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 46(2), pages 163-192.
    6. Fernando Carriazo & John Alexander Gomez, 2015. "The Demand for Air Quality: A Case study in Bogotá, Colombia," Documentos CEDE 014071, Universidad de los Andes - CEDE.
    7. Kahle, Christoph & Seifert, Stefan & Hüttel, Silke, 2019. "Price dispersion in farmland markets: What is the role of asymmetric information?," FORLand Working Papers 11 (2019), Humboldt University Berlin, DFG Research Unit 2569 FORLand "Agricultural Land Markets – Efficiency and Regulation".
    8. Chad M. Baum, 2013. "The Missing Link between Research and Reality: the significance of the relationship between retail format and organic food consumption," Jena Economic Research Papers 2013-049, Friedrich-Schiller-University Jena.

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    More about this item

    Keywords

    Hedonic pricing model; Omitted variables; Air quality; Stochastic frontier model;
    All these keywords.

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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