Valuing Product Attributes Using Single Market Data: A Comparison of Hedonic and Discrete Choice Approaches

Abstract

This paper compares, via simulation, the perfor- mance of the multinomial logit and hedonic models in esti- mating consumer preferences for product attributes. We as- cribe preferences over the attributes of houses to a population of consumers, and, by having them bid for a set of houses, calculate equilibrium prices. The resulting data are used to estimate the two models. We find that the gradient of a linear Box-Cox hedonic price function estimates marginal attribute bids at least as well as a linear logit model, although the difference between the two is small when some variables are not observed or are replaced by proxies. The logit model, however, outperforms the he- donic model in valuing non-marginal attribute changes. This is true when the researcher knows the true form of consumers' utility functions and when the utility function must be approx- irnated.