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Deriving Benefit Measures with Higher Precision: A Study of Economic Values of Air Quality

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  • Ju-Chin Huang

Abstract

A calibration strategy using ridge regression to generate more precise estimates for a particular parameter in a model is proposed. Formulae to compute the proposed ridge estimates from standard ordinary least squares (OLS) results are provided. The strategy is applied to recomputing marginal effects of air pollution on property values for 30 housing studies. Results show that ridge estimates are superior to the OLS estimates under the mean squared error criterion. The same strategy can be used to reestimate key parameters of interest in other applications, such as price elasticities for demand forecasts or the value of a statistical life from hedonic wage regressions.

Suggested Citation

  • Ju-Chin Huang, 2010. "Deriving Benefit Measures with Higher Precision: A Study of Economic Values of Air Quality," Land Economics, University of Wisconsin Press, vol. 86(4), pages 727-745.
  • Handle: RePEc:uwp:landec:v:86:y:2010:iv:1:p:727-745
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    References listed on IDEAS

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    1. Chattopadhyay, Sudip, 1998. "An Empirical Investigation into the Performance of Ellickson's Random Bidding Model, with an Application to Air Quality Valuation," Journal of Urban Economics, Elsevier, vol. 43(2), pages 292-314, March.
    2. David E. Clark, 2006. "Externality Effects on Residential Property Values: The Example of Noise Disamenities," Growth and Change, Wiley Blackwell, vol. 37(3), pages 460-488.
    3. Atkinson, Scott E & Crocker, Thomas D, 1987. "A Bayesian Approach to Assessing the Robustness of Hedonic Property," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 2(1), pages 27-45, January.
    4. Robert J. Anderson JR & Thomas D. Crocker, 1971. "Air Pollution and Residential Property Values," Urban Studies, Urban Studies Journal Limited, vol. 8(3), pages 171-180, October.
    5. Brookshire, David S, et al, 1985. "A Test of the Expected Utility Model: Evidence from Earthquake Risks," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 369-389, April.
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    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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