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An alternative to the standard spatial econometric approaches in hedonic house price models

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  • Kathrine Lausted Veie

    () (Department of Food and Resource Economics, University of Copenhagen)

  • Toke Emil Panduro

    () (Department of Food and Resource Economics, University of Copenhagen)

Abstract

Hedonic models are subject to spatially correlated errors which are a symptom of omitted spatial variables, mis-specification or mismeasurement. Methods have been developed to address this problem through the use of spatial econometrics or spatial fixed effects. However, often spatial correlation is modeled without much consideration of the theoretical implications of the chosen model or treated as a nuisance to be dealt with holding little interest of its own. We discuss the limitations of current standard spatial approaches and demonstrate, both empirically and theoretically the generalized additive model as an alternative. The generalized additive model is compared with the spatial error model and the fixed effects model. We find the generalized additive model to be a solid alternative to the standard approaches, having less restrictive assumptions about the omitted spatial processes while still being able to reduce the problem of spatial autocorrelation and provide trustworthy estimates of spatial variables. However, challenges connected with spatially varying data remain. The choice of flexibility in the spatial structure of the model affects estimated parameters of some spatially varying characteristics markedly. This suggests that omitted variable bias may remain an important problem. We advocate for an increased use of sensitivity analysis to determine robustness of estimates to different models of the (omitted) spatial processes.

Suggested Citation

  • Kathrine Lausted Veie & Toke Emil Panduro, 2013. "An alternative to the standard spatial econometric approaches in hedonic house price models," IFRO Working Paper 2013/18, University of Copenhagen, Department of Food and Resource Economics.
  • Handle: RePEc:foi:wpaper:2013_18
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Cathrine Ulla Jensen & Toke Emil Panduro, 2016. "PanJen: A test for functional form with continuous variables," IFRO Working Paper 2016/08, University of Copenhagen, Department of Food and Resource Economics.
    2. repec:kap:jgeosy:v:20:y:2018:i:1:d:10.1007_s10109-017-0257-y is not listed on IDEAS
    3. Cathrine Ulla Jensen, 2016. "Households’ willingness to pay for access to outdoor recreation: An application of the house price method using spatial quantile regressions," IFRO Working Paper 2016/09, University of Copenhagen, Department of Food and Resource Economics.
    4. Toke Emil Panduro & Cathrine Ulla Jensen & Thomas Hedemark Lundhede & Kathrine von Graevenitz & Bo Jellesmark Thorsen, 2016. "Estimating demand schedules in hedonic analysis: The case of urban parks," IFRO Working Paper 2016/06, University of Copenhagen, Department of Food and Resource Economics.
    5. Cathrine Ulla Jensen & Toke Emil Panduro & Thomas Hedemark Lundhede & Kathrine von Graevenitz & Bo Jellesmark Thorsen, 2016. "Robin Hood in reverse? Assessing distributional effects of green space policy using a second-stage hedonic house price model," IFRO Working Paper 2016/07, University of Copenhagen, Department of Food and Resource Economics.

    More about this item

    Keywords

    hedonic valuation; spatial econometrics; generalized additive model;

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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