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Partial identification of amenity demand functions

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  • Zhang, Congwen
  • Boyle, Kevin J.
  • Kuminoff, Nicolai V.

Abstract

This paper presents a new hedonic framework for reduced form estimation of the demand for spatially delineated nonmarket amenities. We begin from a conventional model of market equilibrium where an amenity is conveyed to homeowners by virtue of their residential location choices. Different housing markets may have different hedonic price functions due to variation across markets in the joint distribution of preferences, income, regulations, and technology. In this setting, taste-based sorting within and across markets confounds point identification of reduced form descriptions for amenity demand curves. However, we demonstrate that basic knowledge of the sorting process is sufficient to construct instruments that identify bounds on demand curves. Bounds on demand curves can be translated into ranges of welfare measures for non-marginal changes in amenities. We find these ranges to be potentially informative in a demonstrative application to evaluating the benefits of improved lake water clarity in the Northeast.

Suggested Citation

  • Zhang, Congwen & Boyle, Kevin J. & Kuminoff, Nicolai V., 2015. "Partial identification of amenity demand functions," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 180-197.
    • Handle: RePEc:eee:jeeman:v:71:y:2015:i:c:p:180-197
    DOI: 10.1016/j.jeem.2015.02.002
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    2. von Graevenitz, Kathrine, 2018. "The amenity cost of road noise," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 1-22.
    3. Wolf, David & Klaiber, H. Allen & Gopalakrishnan, Sathya, 2022. "Beyond marginal: Estimating the demand for water quality," Resource and Energy Economics, Elsevier, vol. 68(C).
    4. Moore, Michael R. & Doubek, Jonathan P. & Xu, Hui & Cardinale, Bradley J., 2020. "Hedonic Price Estimates of Lake Water Quality: Valued Attribute, Instrumental Variables, and Ecological-Economic Benefits," Ecological Economics, Elsevier, vol. 176(C).
    5. Simon Porcher & Alexandros Maziotis & Maria Molinos-Senante, 2017. "The welfare costs of non-marginal water pricing: evidence from the water only companies in England and Wales," Post-Print hal-02145826, HAL.
    6. Irwin, Nicholas & Wolf, David, 2022. "Time is money: Water quality's impact on home liquidity and property values," Ecological Economics, Elsevier, vol. 199(C).
    7. Panduro, Toke Emil & Jensen, Cathrine Ulla & Lundhede, Thomas Hedemark & von Graevenitz, Kathrine & Thorsen, Bo Jellesmark, 2018. "Eliciting preferences for urban parks," Regional Science and Urban Economics, Elsevier, vol. 73(C), pages 127-142.
    8. Kent F. Kovacs & Shelby Rider, 2022. "Estimating the Demand for In Situ Groundwater for Climate Resilience: The Case of the Mississippi River Alluvial Aquifer in Arkansas," NBER Chapters, in: American Agriculture, Water Resources, and Climate Change, pages 367-381, National Bureau of Economic Research, Inc.
    9. Matthew T. Heberling & Dennis Guignet & Michael Papenfus, 2022. "Water Quality and Hedonic Models: A MetaAnalysis of Commodity, Market, and Methodological Characteristics," Working Papers 22-06, Department of Economics, Appalachian State University.

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