Quasi-Experiments and Hedonic Property Value Methods

Abstract

There has recently been a dramatic increase in the number of papers that have combined quasi-experimental methods with hedonic property models. This is largely due to the concern that cross-sectional hedonic methods may be severely biased by omitted variables. While the empirical literature has developed extensively, there has not been a consistent treatment of the theory and methods of combining hedonic property models with quasi-experiments. The purpose of this chapter is to fill this void. An effort is made to provide background information on the traditional hedonic theory, the traditional cross-sectional hedonic methods as well as the newer quasi-experimental hedonic methods that use program evaluation techniques. By connecting these two literatures, the underlying theoretical and empirical assumptions necessary to estimate the marginal willingness to pay for a housing characteristic are highlighted. The chapter also provides a practical how to guide on implementing a quasi-experimental hedonic analysis. This is done by focusing on a series of steps that can help to ensure the reliability of a quasi-experimental identification strategy. We illustrate this process using several recent papers from the literature.