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On the Functional Form of the Hedonic Price Function: A Matching-theoretic Model and Empirical Evidence

  • Gaetano Lisi

    ()

    (Creativity and Motivations Economic Research Centre (CreaM), Department of Economics and Law, University of Cassino and Southern Lazio, Italy)

The key issue in the hedonic price theory is that although the literature emphasises intrinsic nonlinearity in the relationship between house prices and housing characteristics, very little theoretical guidance is provided with regards to a 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 attempts to fill this gap by using the Mortensen-Pissarides matching model to show the nonlinearity of the hedonic price function and provide insights on the more appropriate functional relationship between prices and attributes.

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Article provided by Asian Real Estate Society in its journal International Real Estate Review.

Volume (Year): 16 (2013)
Issue (Month): 2 ()
Pages: 189-207

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Handle: RePEc:ire:issued:v:16:n:02:2013:p:189-207
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  1. Ivar Ekeland & James J. Heckman & Lars P. Nesheim, 2003. "Identification and Estimation of Hedonic Models," NBER Working Papers 9910, National Bureau of Economic Research, Inc.
  2. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2002. "Identifying Hedonic Models," American Economic Review, American Economic Association, vol. 92(2), pages 304-309, May.
  3. Coulson, N Edward, 1992. "Semiparametric Estimates of the Marginal Price of Floorspace," The Journal of Real Estate Finance and Economics, Springer, vol. 5(1), pages 73-83, March.
  4. Richard Arnott, 1988. "Housing Vacancies, Thin Markets, and Idiosyncratic Tastes," Working Papers 722, Queen's University, Department of Economics.
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  6. Brachinger, Hans Wolfgang, 2002. "Statistical Theory of Hedonic Price Indices," DQE Working Papers 1, Department of Quantitative Economics, University of Freiburg/Fribourg Switzerland, revised Aug 2003.
  7. Can, Ayse, 1992. "Specification and estimation of hedonic housing price models," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 453-474, September.
  8. Harry Haupt & Joachim Schnurbus & Rolf Tschernig, 2010. "On nonparametric estimation of a hedonic price function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 894-901.
  9. Colwell, Peter F, 1993. "Comment: Semiparametric Estimates of the Marginal Price of Floorspace," The Journal of Real Estate Finance and Economics, Springer, vol. 7(1), pages 73-75, July.
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  12. 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.
  13. Charles Ka-Yui Leung & Youngman Chun Fai Leong & Siu Kei Wong, 2005. "Housing Price Dispersion: An Empirical Investigation," Departmental Working Papers _167, Chinese University of Hong Kong, Department of Economics.
  14. Coulson, N Edward, 1993. "Semiparametric Estimates of the Marginal Price of Floorspace: Reply," The Journal of Real Estate Finance and Economics, Springer, vol. 7(1), pages 77-78, July.
  15. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
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  24. Anonymous, 2006. "Selected Posters, Annual Meetings," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(02), August.
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  27. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  28. 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.
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