Revisiting the hedonic price method to assess the implicit price of environmental quality with market segmentation
The article highlights the role of heterogeneity in the formation of hedonic prices. The article distinguishes between continuous and groupwise heterogeneity. The distinction helps understanding two important points. First, the analysis of market equilibrium with group wise heterogeneity makes explicit the role of participation and incentives compatibility constraints for groups of buyers. The case of continuous heterogeneity may be thought of as a limit case of groupwise heterogeneity when the number of groups goes to inﬁnity and their masses go to zero. The hedonic price curve is then obtained as the solution of a diﬀerential equation resulting from a market clearing condition. Second, the article outlines that submarkets emerge from market equilibrium only in the case of groupwise heterogeneity. The existence of submarkets means that the hedonic price function is continuous but the implicit price of characteristics is discontinuous at endogenous threshold values separating submarkets. Major implications for the valuation of environmental quality follow on. Based on numerical simulations, the article gives some insights into the way signiﬁcant biases and drawbacks in the estimation of the implicit price of environmental quality can arise if the usual two steps procedure is implemented.
|Date of creation:||02 Oct 2012|
|Date of revision:|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00759247|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- R. Kelley Pace & James P. LeSage, 2004.
"Spatial Statistics and Real Estate,"
The Journal of Real Estate Finance and Economics,
Springer, vol. 29(2), pages 147-148, 09.
- Ivar Ekeland & James Heckman & Lars Nesheim, 2002.
"Identification and estimation of hedonic models,"
CeMMAP working papers
CWP07/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Ivar Ekeland & James J. Heckman & Lars Nesheim, 2003. "Identification and Estimation of Hedonic Models," CESifo Working Paper Series 1031, CESifo Group Munich.
- 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.
- Ekeland, Ivar & Heckman, James J. & Nesheim, Lars, 2003. "Identification and Estimation of Hedonic Models," IZA Discussion Papers 853, Institute for the Study of Labor (IZA).
- K. K. Lancaster, 2010. "A New Approach to Consumer Theory," Levine's Working Paper Archive 1385, David K. Levine.
- James P. LeSage & R. Kelley Pace, 2004. "Models for Spatially Dependent Missing Data," The Journal of Real Estate Finance and Economics, Springer, vol. 29(2), pages 233-254, 09.
- Milgrom, Paul & Shannon, Chris, 1994.
"Monotone Comparative Statics,"
Econometric Society, vol. 62(1), pages 157-80, January.
- Masha Maslianskaia-Pautrel, 2012.
"Hedonic model of segmentation with horizontal differentiated housing,"
TEPP Working Paper
- Masha Maslianskaia-Pautrel, 2013. "Hedonic model of segmentation with horizontal differentiated housing," Working Papers halshs-00856127, HAL.
- Kevin Gillen & Thomas Thibodeau & Susan Wachter, .
"Anistropic Autocorrelation in House Prices,"
Zell/Lurie Center Working Papers
383, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
- Basu, Sabyasachi & Thibodeau, Thomas G, 1998. "Analysis of Spatial Autocorrelation in House Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 61-85, July.
- Patrick Bayer & Robert McMillan & Kim Rueben, 2004. "An Equilibrium Model of Sorting in an Urban Housing Market," NBER Working Papers 10865, National Bureau of Economic Research, Inc.
- Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
- Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
- Aaron S. Edlin & Chris Shannon, 1998. "Strict Single Crossing and the Strict Spence-Mirrlees Condition: A Comment on Monotone Comparative Statics," Econometrica, Econometric Society, vol. 66(6), pages 1417-1426, November.
- Palmquist, Raymond B., 2006. "Property Value Models," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 16, pages 763-819 Elsevier.
- Kuminoff, Nicolai V., 2009. "Decomposing the structural identification of non-market values," Journal of Environmental Economics and Management, Elsevier, vol. 57(2), pages 123-139, March.
- repec:tep:teppwp:wp1203 is not listed on IDEAS
- Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00759247. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.