The welfare benefit of a home’s location: an empirical comparison of spatial and non-spatial model estimates

Abstract

This article compares results from non-spatial and new spatial methods to examine the reliability of welfare estimates (direct and multiplier effects) for locational housing attributes in Seattle, WA. In particular, we assess if OLS with spatial fixed effects is able to account for the spatial structure in a way that represents a viable alternative to spatial econometric methods. We find that while OLS with spatial fixed effects accounts for more of the spatial structure than simple OLS, it does not account for all of the spatial structure. It thus does not present a viable alternative to the spatial methods. Similar to existing comparisons between results from non-spatial and established spatial methods, we also find that OLS generates higher coefficient and direct effect estimates for both structural and locational housing characteristics than spatial methods do. OLS with spatial fixed effects is closer to the spatial estimates than OLS without fixed effects but remains higher. Finally, a comparison of the direct effects with locally weighted regression results highlights spatial threshold effects that are missed in the global models. Differences between spatial estimators are almost negligible in this study.