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Identification and estimation of hedonic models

  • Ivar Ekeland
  • James Heckman

    (Institute for Fiscal Studies and University of Chicago)

  • Lars Nesheim

    ()

    (Institute for Fiscal Studies)

This paper considers the identification and estimation of hedonic models. We establish that technology and preferences in a separable version of the hedonic model are generically identified up to a±ne transformations from data on demand and supply in a single hedonic market. For a very general parametric structure, preferences and technology are fully identified from demand data. Much of the confusion in the empirical literature that claims that hedonic models estimated on data from a single market are fundamentally underidentified is based on linearizations that do not use all of the information in the model. The exact economic model that justifies the linear approximations has strange properties so the approximation is doubly poor. A semiparametric estimation method is proposed, and alternative estimators are considered. Instrumental variables estimators can be applied to identify technology and preference parameters from a single market even though there are no exclusion restrictions.

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File URL: http://cemmap.ifs.org.uk/wps/cwp0207.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP07/02.

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Length: 65 pp.
Date of creation: Jan 2002
Date of revision:
Handle: RePEc:ifs:cemmap:07/02
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  1. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2003. "Identification and Estimation of Hedonic Models," CESifo Working Paper Series 1031, CESifo Group Munich.
  2. Brown, James N & Rosen, Harvey S, 1982. "On the Estimation of Structural Hedonic Price Models," Econometrica, Econometric Society, vol. 50(3), pages 765-68, May.
  3. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  4. Kahn, Shulamit & Lang, Kevin, 1988. "Efficient Estimation of Structural Hedonic Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 157-66, February.
  5. 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.
  6. Lars Nesheim, 2004. "Equilibrium Sorting of Heterogeneous Consumers Across Locations," Econometric Society 2004 North American Summer Meetings 337, Econometric Society.
  7. James N. Brown, 1983. "Structural Estimation in Implicit Markets," NBER Chapters, in: The Measurement of Labor Cost, pages 123-152 National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. James J. Heckman & Edward J. Vytlacil, 2000. "Local Instrumental Variables," NBER Technical Working Papers 0252, National Bureau of Economic Research, Inc.
  11. Helen Tauchen & Ann Dryden Witte, 2001. "Estimating Hedonic Models: Implications of the Theory," NBER Technical Working Papers 0271, National Bureau of Economic Research, Inc.
  12. Amemiya, Takeshi, 1974. "The nonlinear two-stage least-squares estimator," Journal of Econometrics, Elsevier, vol. 2(2), pages 105-110, July.
  13. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
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