Hedonic prices, demands for urban housing amenities, and benefit estimates

Abstract

This paper uses a Rosen, two-step, hedonic price-trait demand approach to estimate demand functions for a vector of urban amenities. To ascertain whether this theoretically preferred approach yields benefit estimates which differ from the oft-used Ridker-Henning, one-step, hedonic approach we conduct a sensitivity analysis. We find that the two-step approach does yield different benefit estimates and that the differences are large for some amenities. The estimates are sensitive to the functional form of the hedonic equation when the forms are significantly different according to modified Box-Cox results, but are not particularly sensitive to specification of the amenity demand equation.