Quality Adjustment for Spatially-Delineated Public Goods: Theory and Application to Cost-of-Living Indices in Los Angeles
This paper illustrates how public goods may be incorporated into a cost-of-living index. When public goods are weak complements to a market good, quality-adjusted prices for the market good capture all the welfare information required. They are also consistent with a Laspeyres index that maintains the bound on a true cost-of-living index. The paper recovers this information from a discrete-choice model, using a simulation routine to solve for the appropriate price adjustments. These concepts are applied to the case of housing, education, crime, and air quality in Los Angeles for 1989 to 1994. Over a period of time when they are improving, incorporating pubic goods into the index lowers the estimated change in the cost of living by 0.5 to 2.6 percentage points. In other years, when public goods diverge, the estimated annual adjustment differs by model, with a range of -0.2 to +1.3 percentage points.
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.:
- Aviv Nevo, 2001.
"New Products, Quality Changes and Welfare Measures Computed From Estimated Demand Systems,"
NBER Working Papers
8425, National Bureau of Economic Research, Inc.
- Aviv Nevo, 2003. "New Products, Quality Changes, and Welfare Measures Computed from Estimated Demand Systems," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 266-275, May.
- Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, May.
- Hazilla, Michael & Kopp, Raymond J, 1990. "Social Cost of Environmental Quality Regulations: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 853-73, August.
- Smith, V Kerry & Huang, Ju-Chin, 1995. "Can Markets Value Air Quality? A Meta-analysis of Hedonic Property Value Models," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 209-27, February.
- Thomas J. Nechyba & Robert P. Strauss, 1997.
"Community Choice and Local Public Services: A Discrete Choice Approach,"
NBER Working Papers
5966, National Bureau of Economic Research, Inc.
- Nechyba, Thomas J. & Strauss, Robert P., 1998. "Community choice and local public services: A discrete choice approach," Regional Science and Urban Economics, Elsevier, vol. 28(1), pages 51-73, January.
- Quigley, John M., 1985. "Consumer choice of dwelling, neighborhood and public services," Regional Science and Urban Economics, Elsevier, vol. 15(1), pages 41-63, February.
- David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1996. "Are Medical Prices Declining?," NBER Working Papers 5750, National Bureau of Economic Research, Inc.
- Robert W. Fogel, 1999. "Catching Up with the Economy," American Economic Review, American Economic Association, vol. 89(1), pages 1-21, March.
- Gillingham, Robert, 1983. "Measuring the Cost of Shelter for Homeowners: Theoretical and Empirical Considerations," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 254-65, May.
- Chattopadhyay, Sudip, 2000. "The effectiveness of McFaddens's nested logit model in valuing amenity improvement," Regional Science and Urban Economics, Elsevier, vol. 30(1), pages 23-43, January.
- David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
- Hausman, Jerry, 1999.
"Cellular Telephone, New Products, and the CPI,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 17(2), pages 188-94, April.
- Sandra E. Black, 1999.
"Do Better Schools Matter? Parental Valuation Of Elementary Education,"
The Quarterly Journal of Economics,
MIT Press, vol. 114(2), pages 577-599, May.
- Sandra E. Black, 1997. "Do better schools matter? Parental valuation of elementary education," Research Paper 9729, Federal Reserve Bank of New York.
- Raymond B. Palmquist & Adis Israngkura, 1999. "Valuing Air Quality With Hedonic and Discrete Choice Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(5), pages 1128-1133.
- Spencer Banzhaf, H., 2005.
"Green price indices,"
Journal of Environmental Economics and Management,
Elsevier, vol. 49(2), pages 262-280, March.
- Blomquist, Glenn C & Berger, Mark C & Hoehn, John P, 1988. "New Estimates of Quality of Life in Urban Areas," American Economic Review, American Economic Association, vol. 78(1), pages 89-107, March.
- Amil Petrin, 2001. "Quantifying the Benefits of New Products: The Case of the Minivan," NBER Working Papers 8227, National Bureau of Economic Research, Inc.
- Willig, Robert D., 1978. "Incremental consumer's surplus and hedonic price adjustment," Journal of Economic Theory, Elsevier, vol. 17(2), pages 227-253, April.
- Joseph A. Herriges & Catherine L. Kling, 1999.
"Nonlinear Income Effects in Random Utility Models,"
The Review of Economics and Statistics,
MIT Press, vol. 81(1), pages 62-72, February.
- Holger Sieg & V. Kerry Smith & Spencer Banzhaf & Randy Walsh, 2000. "Using Locational Equilibrium Models to Evaluate Housing Price Indexes," NBER Working Papers 7934, National Bureau of Economic Research, Inc.
- Nordhaus, William D, 1999. "Beyond the CPI: An Augmented Cost-of-Living Index," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 182-87, April.
When requesting a correction, please mention this item's handle: RePEc:rff:dpaper:dp-02-10-. 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: (Webmaster)
If references are entirely missing, you can add them using this form.