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Do Discrete Choice Approaches to Valuing Urban Amenities Yield Different Results Than Hedonic Models?

Author

Listed:
  • Paramita Sinha
  • Martha Caulkins
  • Maureen Cropper

Abstract

Amenities that vary across cities are typically valued using either a hedonic model, in which amenities are capitalized into wages and housing prices, or a discrete model of household location choice. In this paper, we use the 2000 Public Use Microdata Sample (PUMS) to value climate amenities using both methods. We compare estimates of marginal willingness to pay (MWTP), first assuming homogeneous tastes for climate amenities and then allowing preferences for climate amenities to vary by location. We find that mean MWTP for warmer winters is about four times larger using the discrete choice approach than with the hedonic approach; mean MWTP for cooler summers is twice as large. The two approaches also differ in their estimates of taste sorting. The discrete choice model implies that households with the highest MWTP for warmer winters locate in cities with the mildest winters, while the hedonic model does not. Differences in estimates are due to three factors: (1) the discrete choice model incorporates the psychological costs of moving from one’s birthplace, which the hedonic models do not; (2) the discrete choice model allows for city-specific labor and housing markets, rather than assuming a national market; (3) the discrete choice model uses information on market shares (i.e., population) in estimating parameters, which the hedonic model does not.

Suggested Citation

  • Paramita Sinha & Martha Caulkins & Maureen Cropper, 2018. "Do Discrete Choice Approaches to Valuing Urban Amenities Yield Different Results Than Hedonic Models?," NCEE Working Paper Series 201804, National Center for Environmental Economics, U.S. Environmental Protection Agency.
  • Handle: RePEc:nev:wpaper:wp201804
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    File URL: https://www.epa.gov/environmental-economics/working-paper-do-discrete-choice-approaches-valuing-urban-amenities-yield
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    Keywords

    amenity valuation; location choice; hedonic models; value of climate;

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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