Hedonic Framework Research Articles

Agricultural Productive and Consumptive Use Components of Rural Land Values in Texas: Comment

Previous studies have found that the market price of rural land generally exceeds the capitalized value of its returns from agricultural production (Castle and Hoch). In a recent article, Pope attempts to explain this disparity through an analysis of land values across school districts in rural Texas. Pope concludes that consumptive demand for land accounts for over 75% of the difference between agricultural land market prices and capitalized rental value in agricultural production. However, deficiencies in Pope's conceptualization of the problem and his empirical model raise doubts about the large importance of consumptive value. Pope identifies only two primary components to the value of surface rights to rural land: agricultural productive (including future productivity growth) and consumptive components. Hence, what is not agricultural productive value is, by this definition, consumption value. This conceptual framework is too simple and misleading. For example, demand for land resulting from expected future growth in nonagricultural uses (an expectation component) is not addressed in Pope's study. This may have been an important contributor to land values in Texas during the period of this analysis because of the large influx of population from the Midwest and the intense energy exploration and production activities. This expectation component, however, is empirically captured by Pope in variables representing consumptive value in model 2 (since model 1 did not have much explanatory power). Ignoring the role of expectations in land value determination, Pope interprets the proportion of land value that may have been attributable to expectations as arising from consumptive demand. Even without an expectations component, Pope has failed to properly estimate the consumptive value of rural land parcel price. Land is a heterogenous resource with many attributes. These attributes can be broken down into three general categories: soil or bare land, natural site characteristics (trees, streams, lakes, ponds, wild animals, mountain views, and geographic hazards such as hurricanes, floods, earthquakes), and availability of other nonland services (roads, power, water, sewer, etc.). Pope's analysis of parcel price includes soil or bare land, one site characteristic (number of white-tailed deer harvested) and one nonland service measure (access to metropolitan areas). The sum of the marginal valuations of these attributes is treated by Pope as contributing to consumptive value. There are two problems in his approach. First, the attributes that Pope used in the regression (number of deer harvested and access to metropolitan areas) contribute to productive as well as consumptive values. Second, marginal prices derived from the simple hedonic function, estimated by Pope, do not measure the willingness to pay for additional units of attributes except under restrictive and unlikely assumptions such as incomes and socioeconomic characteristics of all buyers and sellers are the same (Rosen, Follain and Jimenez). There are, however, other methods suggested and used in the literature to determine the marginal values of various attributes and their interrelationships (Rosen, Quigley, Diamond). Pardew, Shane, and Yanagida is an example of a study applying Rosen's hedonic framework to determine marginal values of parcel size, presence of trees, distance to mountain, presence of sewer lines, etc. Conceptually, Pope has estimated a simple hedonic equation (excluding on-site structures) for rural real property. Viewed as a hedonic price equation for rural property, the estimated model has measurement problems. The dependent variable, average market value per acre of rural land (AMV), is based on samples of actual sales data or appraisals of agricultural parcels that vary widely in access to nonland services (State Property Tax Board 1985). Annual net returns per acre from agriculture (ANR) are calculated on the basis of owner-operator budgets or typical lease agreements for a given Texas area (State Property Tax Board 1982). For this study, individual sales data are more appropriate because sales price, calculated net returns, and parcel characteristics have a one-to-one correspondence with one another. For the data set selected, the average ANR calculated for a county may represent a much different average farm than is represented by averRangesan Narayanan and Ronald L. Shane are associate professors in the Department of Agricultural Economics at the University of Nevada. Detailed review comments by an anonymous referee were extremely helpful. The authors are also grateful to Mike Houston for sharing his knowledge of Texas land characteristics and market conditions.

Evaluating Implicit Prices of Intermediate Products

Agricultural markets have changed over time, along with the nature and scope of U.S. agricultural production. There has been a shift from spot markets to a variety of alternative vertical exchange mechanisms (Knutson, p. 127). Examples include forward market contracting, vertical integration, cooperatives, and electronic contract marketing. This shift has concerned farmers, researchers, and government agencies because less is known about the interpretation of price differences from one transaction to another when the same exchange instrument is used (i.e., a contract). Jesse and Johnson demonstrated that different contract specifications resulted in different negotiated contract prices. Although their study was a significant contribution, the underlying structure generating the different prices was not explored. This paper utilizes the hedonic framework developed by Rosen to analyze potato contract prices in the Hastings, Florida, growing area. It was hypothesized that there were numerous and varied services associated with vertical exchange mechanisms (Carl). Implicit payments, which affect observed prices, were made and received for these services.

The role of site and job characteristics in hedonic wage models

Recent economic analyses of wage rate differentials have generally used some form of hedonic framework in explaining the observed wage structure. While these studies have adopted this common theoretical justification, the models have been used to serve two distinct objectives. The first of these is an empirical test of the theory of equalizing differences originally introduced by Adam Smith. In such applications (see Brown [7], Lucas [26], Olson [28], Thaler and Rosen [36], and Viscusi [40] as examples) specific job characteristics, measured with technical information or with worker perceptions, have been used to explain differences in wage rates across individuals and jobs. While there are a number of these studies,’ there has not been a consistent pattern of support for the theory. Indeed, with the exception of job risks, many characteristics that a priori would be expected to lead to equalizing differences have often exhibited incorrect and/or statistically insignificant measured effects on wages.* The second use for wage models has been as the basis for an index of the quality of life in urban areas. In this framework, households are assumed to select residential locations so as to maximize their individual welfare. Migration between cities provides the mechanism for an equilibrium household assignment. Under ideal conditions the pattern of equilibrium wage rates reflects the attributes of the cities involved (see Hoch [20], Izraeli [23], Cropper [lo], Cropper and Arriaga-Salinas [ 111, and Rosen [31] as examples). The purpose of this paper is to develop a model for wage rate differentials that includes both job and site characteristics, and to estimate the model with a large micro-data set. Our wage models provide estimates of a market clearing envelope which includes each of two types of past analyses as a

Compensation, Safety, and Absenteeism: Evidence from the Paper Industry

This paper develops an economic model of absenteeism and tests that model with data from a sample of establishments in the paper industry. Absenteeism is viewed as a desirable nonpecuniary element of the compensation package. The model, which is based upon the hedonic framework developed by Sherwin Rosen, focuses on the effects of wages, fringe benefits, and employment hazards on the long-run equilibrium absence rate of an establishment. The author finds that absence rates are significantly higher in paper plants with low wages and high occupational illness and injury rates, as predicted by the model. The impact of fringe benefits is less clear-cut both theoretically and empirically. The results suggest that work attendance plays an important part in labor market adjustment; studies that focus only on wage differences will underestimate the compensating differential for employment hazards, which includes increased absence rates as well as higher wages.

Methodologies for Estimating Housing Subsidy Benefits

The traditional subsidy program benefit measurement techniques for a composite commodity ("housing services") model are reviewed and extended for use in the increasingly popular hedonic price framework in which housing is decomposed into a vector of characteristics, Since recent work has suggested that observed hedonic prices may not reflect market phenomena, a generalized approach is suggested which uses housing characteristics but is free of hedonic prices.