Hedonic Estimates Research Articles

On the Constancy of Hedonic Wine Price Coefficients over Time

AbstractThis article tests the stability of the main hedonic wine price coefficients over time. We draw on an extensive literature review to identify the most frequently used methodology and define a standard hedonic model. We estimate this model on monthly subsamples of a worldwide auction database of the most commonly exchanged fine wines. This provides, for each attribute, a monthly time series of hedonic coefficients time series data from 2003 to 2014. Using a multivariate autoregressive model, we then study the stability of these coefficients over time and test the existence of structural or cyclical changes related to fluctuations in general price levels. We find that most hedonic coefficients are variable and either exhibit structural or cyclical variations over time. These findings shed doubt on the relevance of both short- and long-run hedonic estimations. (JEL Classifications: C13, C22, D44, G11)

Are land values related to ambient air pollution levels? Hedonic evidence from Mexico City

AbstractThis article investigates whether residents of Mexico City value air quality. Our results suggest that air quality improvement in PM10 is equivalent to a marginal willingness to pay (MWTP) of US$440.31 per property for the period 2006–2013. The corresponding MWTP for PM2.5 is US$880.63, for O3 is US$623.78, and for SO2 is as much as US$2091.50. These estimates are considerably larger in magnitude compared to the few other studies in similar settings. As a percentage of annual household income, these represent 2.44 per cent for PM10, 4.88 per cent for PM2.5, 3.46 per cent for O3 and 11.59 per cent for SO2. Our estimates of land value–pollution elasticities for PM10 (−0.26 and − 0.58) are within range of hedonic estimates for total suspended particulate matter in US cities around the 1970s. The corresponding elasticities range from − 0.55 to − 0.84 for PM2.5, from − 0.06 to − 0.49 for O3 and from − 0.11 to − 0.34 for SO2.

Housing Market Microstructure: What is a Competing House?

Housing market microstructure focuses on how neighborhood market conditions affect prices and liquidity. In this paper, we test alternative empirical microstructure models in which substitute houses are determined by similar price or size. Specification tests reveal that price-based measures of substitute or competing houses introduce endogeneity bias into the hedonic price function estimates. Non-nested specification tests do not provide strong support for living area-based or number-of-bedrooms-based models. But the results do support using microstructure measures that allow for asymmetric competition and shopping externalities from larger and smaller neighboring houses, a set of measures not yet employed in the literature.

A Profit Function Approach to Wage–Risk Differentials

A variable profit function is used in a novel way to estimate wage–risk premiums in Ohio bituminous coal mining. Unlike the dominant hedonic method, the profit function does not assume equilibrium and allows inferences about the marginal opportunity cost of accidents to mining companies. The profit function risk premium, expressed as a value of a statistical life (VSL), is $12,000 (in 1915 prices), and is below published estimates covering this period. The hedonic method is also used and yields a very similar VSL, a robustness check. It is also shown that the use of piece rate–based wages of coal loaders (the main group of miners) yields more plausible hedonic estimates than the fixed daily wage of “inside” miners typically employed.

Who benefits from rental assistance? Evidence from a natural experiment

Rent subsidies were provided to students living in central Jerusalem between 2006 and 2011 in order to encourage urban renewal. This program led to a marked increase in the number of students renting apartments in the city center. Using diff-in-diffs hedonic estimations, we find that 70–80% of the rent subsidies remained in the hands of the students, within the broad range of incidence rates found worldwide.

The housing market impacts of wastewater injection induced seismicity risk

Using data from a county severely affected by the increased seismicity associated with injection wells since 2009 in Oklahoma, we recover hedonic estimates of property value impacts from nearby shale oil and gas development that vary with earthquake risk exposure. Results suggest that the seismic activity has enhanced the perceived risks associated with wastewater injection but not shale gas production. This risk perception is limited to injection wells within 2 km of the properties.

Estimating the Gains from New Rail Transit Investment: A Machine Learning Tree Approach

AbstractUrban rail transit investments are expensive and irreversible. As people differ with respect to their demand for trips, their value of time, and the types of real estate they live in, such projects are likely to offer heterogeneous benefits to residents of a city. Defining the opening of a major new subway in Seoul as a treatment for apartments close to the new rail stations, we contrast hedonic estimates based on multivariate hedonic methods with a machine learning (ML) approach. This ML approach yields new estimates of these heterogeneous effects. While a majority of the “treated” apartment types appreciate in value, other types decline in value. We cross‐validate our estimates by studying what types of new housing units developers build in the treated areas close to the new train lines.

The Value of Ozone Air Quality Improvements to Renters: Evidence From Apartment Building Transactions in Los Angeles County

We investigate the relationship between the sale prices of apartment buildings and ozone levels in Los Angeles. The hedonic estimation controls for the potential bias resulting from the endogeneity of air pollution measures. We find that renters' valuations for air quality are capitalized into the asset price of apartment buildings. For a 1% reduction in the 1990 ambient air pollution level, renters' annual marginal willingness to pay (MWTP) is estimated at $14 to $52 in constant 2010 dollars. These estimates are somewhat smaller than current MWTP estimates from the owner-occupied single family house literature.

Terroir in the New World: Hedonic Estimation of Vineyard Sale Prices in California

AbstractIn the Old-World vineyards of Europe, a key concept that plays an important role in the production and appreciation of wines isterroir, which refers to the special characteristics of a place that impart unique qualities to the wine produced. We examine whetherterroirmatters in the New-World wines produced in California's Napa and Sonoma Counties by conducting a hedonic price analysis of vineyard sales over the period 1991 to 2007 to determine the relative effects on vineyard sales prices of designated appellations versus biophysical site attributes commonly associated withterroir, such as slope, aspect, elevation, and climate. Because vineyards that are sold are not necessarily representative of the universe of vineyards, we employ Heckman's two-stage econometric approach to control for possible sample-selection bias. We find that intrinsic site attributes and designated appellations influence vineyard prices, although our results are stronger and more consistent with regard to the influence of appellations. This finding indicates thatterroirmatters economically, even if the designated appellations have relatively less connection in reality withterroir. (JEL Classifications: C2, Q11)

Estimating the Gains from New Rail Transit Investment: A Machine Learning Tree Approach

Urban rail transit investments are expensive and irreversible. Since people differ with respect to their demand for trips, their value of time, and the types of real estate they live in, such projects are likely to offer heterogeneous benefits to residents of a city. Using the opening of a major new subway in Seoul, we contrast hedonic estimates based on multivariate hedonic methods with a machine learning approach that allows us to estimate these heterogeneous effects. While a majority of the apartment types appreciate in value, other types decline in value. We explore potential mechanisms. We also cross-validate our estimates by studying what types of new housing units developers build in the treated areas close to the new train lines.

Alteration in Taste Perception among Young Children during the use of Removable Orthodontic Appliance Therapy.

The sense of smell is very influential in the taste of foods. If the smell pleases us, we anticipate the taste of the food with a great deal of relish. If our sense of smell is impaired, so is our taste. The effect of appliance on taste perceptions has always had a controversial subject. The present study was designed to analyze the change in taste perception in children using removable orthodontic appliances. All the selected volunteers were given different taste stimuli and were asked to score as per their perception. The verbal score was calculated based on the correct and incorrect taste stimuli given to them. Visual analog scale was used to assess intensity and hedonic (palatability) estimation of the volunteers. The volunteers from both study and control groups scored different values for taste stimuli. The majority of stimuli were estimated correctly by both groups. There was no statistically significant difference between the study and control groups. In different testing sessions, the scoring of the volunteers was nearly constant, indicating that an appliance does not play a major role in the alteration of taste stimuli. The appliance brings about transient change in taste perception, we should educate the patient before delivering the appliance about the transient change in taste perception and encourage full-time wear of the appliance, including during meals, without fear of affecting taste sensations.

The Housing Market Impacts of Wastewater Injection Induced Seismicity Risk

Using data from Oklahoma County, an area severely affected by the increased seismicity associated with injection wells, we recover hedonic estimates of property value impacts from nearby shale oil and gas development that vary with earthquake risk exposure. Results suggest that the 2011 Oklahoma earthquake in Prague, OK, and generally, earthquakes happening in the county and the state have enhanced the perception of risks associated with wastewater injection but not shale gas production. This risk perception is driven by injection wells within 2 km of the properties.

Counting the costs of alcohol: how useful an aid to policymaking?

Commentary to: Which cost of alcohol? What should we compare it against?

Does School Quality Matter? A Travel Cost Approach

Although the majority of school districts in the United States assign students to schools on the basis of geographic location, there is increasing interest from parents and policy makers in school choice programs. These programs allow parents (and children) to choose their school. In many cases, when students opt to attend a nonlocal school, the parent is responsible for transportation. This creates a trade-off between school quality and travel expenditure. This paper estimates the value of school quality in a random utility model framework, using data on rank-ordered preferences submitted in a school choice program in Garland, Texas. I find that a standard deviation of high school quality is valued between $495 and $783, substantially lower than hedonic estimates that include noneducational benefits associated with good schools. In addition to estimating the average value of school quality, this approach can also be used to estimate the value of school quality for demographic groups or for individual students.

Unintended consequences: the use of property tax valuations as guide prices in Wellington, New Zealand

Property markets are characterised by a lack of information, particularly in relation to price. Where guide prices are not provided for properties and sale prices for comparable properties are not widely available, buyers and sellers may depend upon valuations of the property that are not intended to act as market valuations. The resulting anchoring heuristics may lead to a reliance on that information in decision-making. Using mass valuation data and house sale transactions for Wellington, New Zealand, between 2007 and 2010, issues relating to transaction volume, transaction prices and the release of government valuation data are evaluated through a two-stage hedonic estimation. The timing of transactions was related to the release of government valuation data as well as significant relationships found between the government value of the land and final transaction price. These findings suggest that transaction price influences are an unintended consequence of making mass valuation information the only freely available information to the public.

Panel Data Hedonics: Rosen's First Stage and Difference-in-Differences as 'Sufficient Statistics'

For decades, economists have used the hedonic model to estimate demands for the implicit characteristics of differentiated commodities. The traditional cross-sectional approach to hedonic estimation can recover marginal willingness to pay for characteristics, but has faltered over a difficult endogeneity problem when attempting non-marginal welfare measures. I show that when marginal prices can be reliably estimated, and when panel data on household demands is available, one can construct a second-order approximation to non-marginal welfare measures - using only the first-stage marginal prices. Under a single-crossing restriction, the approach re-mains valid for repeated cross sections of product prices.More recently, economists have questioned the assumptions under which one can identify these cross-sectional hedonic price functions, raising the possibility of unobservables that are correlated with the characteristic of interest. To overcome this problem, they have introduced difference-in-differences econometric models to identify capitalization effects. Unfortunately, the interpretation of these effects has not been clearly perceived in the literature. I additionally show these capitalization effects are the average direct unmediated on prices of a change in characteristics, which can be interpreted as a movement along the ex post hedonic price function. This effect is a lower bound on Hicksian equivalent surplus.

Toward more general hedonic estimation: Clarifying the roles of alternative experimental designs with an application to a housing attribute

Traditional hedonic estimation approaches are known to be biased when exogenous shocks affect multiple product attributes, the market for the product's complements and substitutes, and aggregate quantity produced. Our research develops a more general hedonic model to recover the marginal willingness to pay for an attribute in the presence of such known hazards to identification based on randomized experiments. Three experimental approaches are introduced on how to estimate attribute demand that address known biases, have transparent identification assumptions, and are feasible to implement. We apply one of the estimators developed to measure the marginal value placed by householders on subsidized carbon monoxide detectors.

The Housing Market Impacts of Shale Gas Development

Using data from Pennsylvania and an array of empirical techniques to control for confounding factors, we recover hedonic estimates of property value impacts from nearby shale gas development that vary with water source, well productivity, and visibility. Results indicate large negative impacts on nearby groundwater-dependent homes, while piped-water-dependent homes exhibit smaller positive impacts, suggesting benefits from lease payments. Results have implications for the debate over regulation of shale gas development. (JEL L71, Q35, Q53, R31)

Hedonic Vices: Fixing Inferences about Willingness to Pay in Recent House-Value Studies

A key tool for studying the demand for neighborhood amenities and estimating the benefits from amenity improvements is a regression of house value on amenity levels, controlling for housing characteristics. Several scholars have developed methods to address the methodological challenges, such as endogeneity, faced by these “hedonic” regressions. Unfortunately, however, some recent studies neglect basic principles of hedonic estimation in Rosen [(1974). Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition. Journal of Political Economy, 82 (1), 34–55]. After providing conceptual background, this article explains these hedonic “vices” and how to avoid them. We focus on inappropriate functional forms, inappropriate control variables, and misinterpretation of hedonic regression results. Our analysis is supported using data from the Cleveland area in 2000 and a simulation model.

The capitalization of subway access in home value: A repeat-rentals model with supply constraints in Beijing

Urban rail transit enhances accessibility of the communities it serves and often contributes to the value of local real properties. A small number of studies have gone beyond the traditional cross-sectional hedonic analysis to use repeat-sales data in the US for more robust estimation of rail transit’s impact on property value. While the empirical literature generally supports the positive capitalization of rail transit in home value, it has produced widely varied estimates and failed to incorporate the theoretical insight that more elastic housing supply would reduce the extent of local amenities’ capitalization in home value. Observing Beijing’s rapid expansion of subway lines during the late 2000s, this study uses repeat rental transactions from 2005 to 2011 to investigate how home value reacts to the change in the home’s distance to nearest subway station. Repeat-rentals estimates suggest a rent-distance elasticity of −0.02, 70% below the cross-sectional hedonic estimate. Moreover, using the unique history of state-owned enterprise relocations as instrument for intra-city variation in land supply, we find that the capitalization of subway proximity in home value is weaker where land supply is more elastic. Our findings support the significant bias caused by omitted variables in the hedonic estimates and confirm housing supply’s role in explaining the intra-city spatial variation in estimates.