IDEAS home Printed from https://ideas.repec.org/p/rff/dpaper/dp-02-10-.html
   My bibliography  Save this paper

Quality Adjustment for Spatially-Delineated Public Goods: Theory and Application to Cost-of-Living Indices in Los Angeles

Author

Listed:
  • Banzhaf, H. Spencer

    () (Resources for the Future)

Abstract

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.

Suggested Citation

  • Banzhaf, H. Spencer, 2002. "Quality Adjustment for Spatially-Delineated Public Goods: Theory and Application to Cost-of-Living Indices in Los Angeles," Discussion Papers dp-02-10-, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-02-10-
    as

    Download full text from publisher

    File URL: http://www.rff.org/RFF/documents/RFF-DP-02-10.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Fisher, Franklin M. & Shell, Karl, 1972. "The Economic Theory of Price Indices," Elsevier Monographs, Elsevier, edition 1, number 9780122577505 edited by Shell, Karl.
    3. Sandra E. Black, 1999. "Do Better Schools Matter? Parental Valuation of Elementary Education," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 577-599.
    4. 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 853-873, August.
    5. 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.
    6. 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.
    7. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, April.
    8. O'Sullivan,Arthur & Sexton,Terri A. & Sheffrin,Steven M., 2007. "Property Taxes and Tax Revolts," Cambridge Books, Cambridge University Press, number 9780521035996, May.
    9. Hausman, Jerry, 1999. "Cellular Telephone, New Products, and the CPI," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 188-194, April.
    10. 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.
    11. Spencer Banzhaf, H., 2005. "Green price indices," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 262-280, March.
    12. 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.
    13. 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 254-265, May.
    14. Amil Petrin, 2001. "Quantifying the Benefits of New Products: The Case of the Minivan," NBER Working Papers 8227, National Bureau of Economic Research, Inc.
    15. 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 182-187, April.
    16. 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.
    17. 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.
    18. 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.
    19. Robert W. Fogel, 1999. "Catching Up with the Economy," American Economic Review, American Economic Association, vol. 89(1), pages 1-21, March.
    20. 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.
    21. Willig, Robert D., 1978. "Incremental consumer's surplus and hedonic price adjustment," Journal of Economic Theory, Elsevier, vol. 17(2), pages 227-253, April.
    22. 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.
    23. 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 209-227, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. H. Spencer Banzhaf & V. Kerry Smith, 2007. "Meta-analysis in model implementation: choice sets and the valuation of air quality improvements," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(6), pages 1013-1031.
    2. Spencer Banzhaf, H., 2005. "Green price indices," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 262-280, March.
    3. Smith, V. Kerry & Banzhaf, H. Spencer, 2007. "Quality adjusted price indexes and the Willig condition," Economics Letters, Elsevier, vol. 94(1), pages 43-48, January.

    More about this item

    Keywords

    air quality; discrete choice models; green accounting; nonmarket valuation; price inde;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D60 - Microeconomics - - Welfare Economics - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: http://edirc.repec.org/data/degraus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.