Hedonic Price Function Research Articles

The Hedonic Price for Italian Red Wine: Do Chemical and Sensory Characteristics Matter?

ABSTRACTIn this article, we study the main determinants of price for Italian red wine sold on the domestic market via the estimation of a hedonic price function for the period 2005–2009. For each bottle considered, our dataset contains several characteristics, such as the price by retail channel (price in supermarkets and in wine shops), label characteristics, chemical analysis and sensory and experts’ evaluations. The unique features of the dataset allow us to study the price formation in the different market segments.The analysis shows that in the large‐scale retail trade consumers value most what is written on the label, but only if it is a verifiable characteristic; label characteristics are also important in wine shops, but a selection process exists to enter this market. Finally, selling wine via both channels appears to be a winning strategy: it allows the price to be increased in the large‐scale retail trade, but it does not reduce the price in wine shops.

The valuation of off-site ecosystem service flows: Deforestation, erosion and the amenity value of lakes in Prescott, Arizona

One of the most important services provided by forests is the control of erosion. We investigated the value of forest cover in protecting water quality in five urban lakes around Prescott, AZ. We first estimated the role of forest cover in regulating sediment loadings into each lake via a sediment delivery model. We then used 8301 single-family residential property transactions that occurred between 2002 and 2005 in Prescott, AZ, to estimate a hedonic price function. This yielded an estimate of the marginal willingness-to-pay (MWTP) for avoiding 1t of sediment per lake-acre, from which we were able to infer the marginal willingness to pay for the erosion control services associated with a 10% change in current canopy cover. We found that the marginal value of the erosion control services of forest cover varies widely across the watersheds depending on the accessibility of affected lakes, the current level of canopy cover, and the number and value of affected residential properties among other factors.

Hedonic Estimation with Unobserved Characteristics: An Application to the Housing Market in Santiago, Chile

We estimate a hedonic price function for the characteristics of housing units in Santiago, Chile, with the aim to capture unobserved utility-generating attributes for each unit. We used for this purpose two different semiparametric regression methods: a local linear kernel regression with a single unobservable index variable, similar to what has been implemented by Bajari and Kahn (2005), and a partially linear in the parameters, partially nonparametric method as first proposed by Robinson (1988). The data used comes from a cross-sectional sample of housing units in Santiago, Chile in 2006. Interestingly, the results obtained for the unobservable components are similar to each other and to ordinary least squares.

International Real Estate Review

The key issue in the hedonic price theory is that although the literature emphasises intrinsic nonlinearity in the relationship between house prices and housing characteristics, very little theoretical guidance is provided with regards to a more appropriate mathematical specification for the hedonic price function. Thus, most empirical studies make use of flexible functional forms or simple linear models which possess a direct economic meaningfulness. This theoretical paper attempts to fill this gap by using the Mortensen-Pissarides matching model to show the nonlinearity of the hedonic price function and provide insights on the more appropriate functional relationship between prices and attributes.

Semiparametric spatial effects kernel minimum squared error model for predicting housing sales prices

Semiparametric regression models have been extensively used to predict housing sales prices, but semiparametric kernel machines with spatial effect have not been studied yet. This paper proposes the semiparametric spatial effect kernel minimum squared error model (SSEKMSEM) and the semiparametric spatial effect least squares support vector machine (SSELS-SVM) for estimating a hedonic price function and compares the price prediction performance with the conventional parametric models and a semiparametric generalized additive model (GAM). This paper utilizes two data sets. One is a large data set representing 5966 single-family residential home sales between July 2000 and August 2008 from Pitt County, North Carolina. The other is a data set of residential property sales records from September 2000 to September 2004 in Carteret County, North Carolina. The results show that the SSEKMSEM and SSELS-SVM outperform the parametric counterparts and the semiparametric GAM in both in-sample and out-of-sample price predictions, indicating that these kernel machines can be useful for measurement and prediction of housing sales prices.

Nonparametric Estimation of A Hedonic Price Model: A South African Case Study

Parametric regression models of hedonic price functions suffer from two main specification issues: the identification of appropriate dependent and independent variables, and the choice of functional form. Although the first issue remains relevant with the use of nonparametric regression models, the second issue becomes irrelevant since these models do not presume functional forms a priori. We estimate a linear parametric model via OLS, which fails a common specification test, before showing that recently developed nonparametric regression methods outperform it significantly. In addition to estimating the models, we compare the out-of-sample prediction performance of the OLS and nonparametric models. Our data reveals that the nonparametric models provide more accurate predictions than the parametric model.

La productivité naturelle et la réglementation comme déterminants de la valeur du foncier ostréicole : Un modèle de prix hédoniques spatial appliqué au Bassin d’Arcachon

Afin de montrer l'importance de la réglementation et de la productivité naturelle dans la valorisation des surfaces de production ostréicoles, nous avons estimé une fonction de prix hédonique des concessions ostréicoles arcachonnaises. Les « terres ostréicoles » ont comme particularité d'être des concessions du Domaine Public Maritime et sont à ce titre soumises à son régime protecteur. Néanmoins, loin d'entraver l'activité ostréicole par les contraintes qu'elle impose, la réglementation se révèle être une garante du maintien d'un niveau satisfaisant de productivité naturelle des concessions pour permettre une reproduction et une croissance des huîtres dans des conditions favorables. Ainsi, les résultats de la modélisation montrent que plus de la moitié du prix d'échange des concessions est déterminé par les conditions réglementaires régissant leur utilisation. Ils soulignent également que les conditions du milieu ne sont pas identiques sur l'ensemble du Bassin d'Arcachon justifiant une réglementation adaptée aux différences de productivité naturelle.

Using stochastic frontier models to mitigate omitted variable bias in hedonic pricing models: A case study for air quality in Bogotá, Colombia

Hedonic pricing models use property value differentials to value changes in environmental quality. If unmeasured quality attributes of residential properties are correlated with an environmental quality measure of interest, conventional methods for estimating implicit prices will be biased. Because many unmeasured quality measures tend to be asymmetrically distributed across properties, it may be possible to mitigate this bias by estimating a heteroskedastic frontier regression model. This approach is demonstrated for a hedonic price function that values air quality in Bogotá, Colombia.

The Price Premium for Organic Wines: Estimating a Hedonic Farm-Gate Price Equation

AbstractOrganic wines are increasingly produced and appreciated. Because organic production is more costly, a crucial question is whether they benefit from a price premium. We estimate hedonic price functions for Piedmont organic and conventional wines. We use data on the production side in addition to variables of interest to consumers. Our results show that, along with characteristics of interest to consumers, some farm and producer characteristics not directly relevant for consumers do significantly affect wine prices. We find that organic wine tends to obtain higher prices than conventional wine. The price premium is not simply an addition to other price components; organic quality modifies the impact of the other variables on price. (JEL Classification: C21, D49, L11, Q12)

English

This study analyzes the relationships between farmland values and factors associated with the growth in Chilean agriculture, and identifies agricultural land value’s determinants by estimating a log-linear hedonic price function. The results indicate that a parcel’s market value varies according to its suitability and productivity for different crops, its location and transport costs, its potential for residential use, and other factors that determine expectations of future income streams. Farms with soil aptitude for fruits, high-valued export-oriented crops that have led Chile’s agricultural boom, have higher values than those with forestry soil aptitude.

Spatial price analysis of used construction equipment: the case of excavators

Equipment represents one of the largest input expenditures for the construction sector and other firms. Yet, prices of used construction equipment have not been widely studied in the economic literature. A spatial hedonic price function is specified and estimated for used excavators sold by auction in North America from 1996 to 2006. The results indicate that prices of used excavators differ significantly for various reasons. Controlling for characteristics of the machinery, we find evidence of regional price variation and ‘within sale’ spatial effects. Prices also vary between auction houses themselves.

Option value and the price of teardown properties

The introduction of uncertainty over the future price of structural capital into a model of teardowns implies a value to delaying the demolition vs. preservation decision, and that the market price of a redeveloped property may increase with its quantity of structural capital. Using data from an active teardown market, we test the model’s prediction that hedonic price function coefficients depend on the expected time between sale and demolition. As predicted, structural variables have significant effects on the sales prices of both teardown and non-teardown properties, and the effects are generally much larger the lower the estimated teardown probability.

Repeat Sales as a Matching Estimator

The most common approaches for constructing house price indices—hedonic price functions and the repeat sales estimator—focus on changes over time in mean prices. Though the hedonic approach is less wasteful of data than the repeat sales estimator, it relies on an accurate specification of the underlying econometric model. I suggest using a matching estimator as an alternative to the hedonic and repeat sales approaches. Like the repeat sales approach, a matching estimator uses pairs of sales from different dates to estimate the mean difference in sales prices over time. The matching approach preserves much larger sample sizes than the repeat sales estimator while requiring less preimposed structure than the hedonic approach. The matching approach makes it easy to characterize changes in the full distribution of house prices.

Assessing Changes in Capital and Investment as a Result of Fishing Capacity Limitation Programs

This paper provides a framework to evaluate the effectiveness of the European Multiannual Guidance Programmes on capacity limitation based on the evolution of the prices of used fishing vessels and on the measures of capital and investment derived from the estimation of a hedonic price function related to vessels characteristics. Attention is paid not only to the correct specification of the numerical variables but also, to testing for sample selection bias, to checking for structural change, to analysing the convenience of using alternative estimation methods and to discussing the potential bias as a result of asymmetric information in the used markets. The application of this framework to the Basque fleets evidences clear and coincident signs of successful adjustment after MAGP3, but also a substantial investment in the next periods as a result of the modernisation of the fleets.

Love thy neighbor: Income distribution and housing preferences

Do homeowners prefer living in an area with a more equal distribution of income? We answer this question by estimating a semi-parametric hedonic pricing model for about 90,000 housing units transacted in Hong Kong between 2005 and 2006. We first identify a hedonic price function by locally regressing the rental price of the housing unit on its intrinsic and neighborhood characteristics, one of which is the Gini coefficient for household income of the constituency area. We then combine the estimates with a log utility function to obtain the heterogeneous preference parameters. Finally, we estimate the joint distribution of the preference parameters and demographics. We find that most homeowners have a strong distaste for inequality in their neighborhood, and the distaste increases with income and goes down with education level. Counterfactual experiments show that reallocating public rental housing by half can increase the welfare of homeowners by about HK$8,000 on average per year, an amount which is equivalent to increasing the housing unit by 20 square feet or reducing the age of the unit by 5 years.

Hedonic Analysis of Apple Attributes in Metropolitan Markets of Western Canada

ABSTRACTOver the last decade, the level of competition in the Canadian apple industry has been affected by growing competitive pressures from increasing imports and the availability of other fresh fruits. In response to intensifying competition, the industry has introduced new apple varieties that are more desirable to consumers in terms of eating quality and improve growers’ profitability. British Columbia (BC) apple sales data were employed to examine the implicit value of apple attributes for apples sold in several metropolitan areas of western Canada (Vancouver, Calgary, Edmonton, Saskatoon, and Winnipeg). Linear hedonic price functions were estimated to determine price premiums paid for newer varieties, higher grades, and larger fruit size. In addition, the price effects of cold storage and seasonality were considered because of their association with apple quality. Wholesale prices were significantly influenced by apple fruits of newer varieties, grades, fruit sizes, and metropolitan area. Wholesalers also distinguished between Canadian and BC grades of different varieties. Wholesale prices varied across urban centers; they were relatively higher in Winnipeg and Saskatoon than in Vancouver [EconLit Classifications: Q110, Q130].

Spatial Transferability of Hedonic House Price Functions

McArthur D. P., Osland L. and Thorsen I. Spatial transferability of hedonic house price functions, Regional Studies. The aim of this paper is to investigate whether it is possible to use parameter estimates from a hedonic function estimated in one region to make reliable predictions in another region. Two regions in south-west Norway are taken as the example. Focus is placed on the stability and transferability of parameters attached to two measures of spatial structure: proximity to the central business district (CBD) and accessibility to the labour market. In making this judgement, classical statistical tests are employed alongside equivalence testing. The conclusions are that predictions made using transferred spatial structure parameters were equivalent given the chosen tolerance level. McArthur D. P., Osland L. et Thorsen I. La transférabilité géographique des fonctions hédoniques des prix du logement, Regional Studies. Cet article cherche à examiner si, oui ou non, on peut employer des estimations paramétriques à partir d'une fonction hédonique estimée dans une région particulière afin de prévoir exactement dans d'autres régions. Deux régions situées dans le sud-ouest de la Norvège servent d'études de cas. On met l'accent sur la stabilité et la transférabilité des paramètres attachés à deux mesures de la structure géographique: la proximité de la zone commerciale centrale (Central Business District; CBD) et l'accessibilité du marché du travail. En prononcant ce jugement, on emploie des tests statistiques classiques conjointement avec des tests d'équivalence. On conclut que les prévisions faites à partir des paramètres transférés de la structure géographique étaient équivalentes étant donné le niveau de tolérance choisi. Modèles hédoniques Transférabilité géographique Tests d'équivalence Stabilité paramétrique McArthur D. P., Osland L. und Thorsen I. Räumliche Übertragbarkeit von hedonischen Hauspreisfunktionen, Regional Studies. In diesem Beitrag wird untersucht, ob sich Parameter-Schätzungen einer hedonischen Funktion, die in einer Region vorgenommen wurden, für zuverlässige Prognosen in einer anderen Region nutzen lassen. Als Beispiel dienen zwei Regionen im Südwesten Norwegens. Der Schwerpunkt liegt auf der Stabilität und Übertragbarkeit der Parameter für die beiden Maßstäbe der Raumstruktur: die Nähe zum zentralen Geschäftsdistrikt und die Zugänglichkeit des Arbeitsmarkts. Für dieses Urteil kommen klassische statistische Tests gemeinsam mit Äquivalenztests zum Einsatz. Wir kommen zum Schluss, dass Prognosen, die mit Hilfe von übertragenen Parametern der Raumstruktur vorgenommen wurden, innerhalb des gewählten Toleranzbereichs äquivalent ausfielen. Hedonische Modelle Räumliche Übertragbarkeit Äquivalenztest Stabilität von Parametern McArthur D. P., Osland L. y Thorsen I. Transferibilidad espacial de las funciones de precios hedónicos de la vivienda, Regional Studies. El objetivo de este artículo es investigar si es posible utilizar estimaciones de parámetros de una función hedónica calculada en una región para hacer predicciones fiables en otra región. Se toman como ejemplos dos regiones del suroeste de Noruega. Nos fijamos en la estabilidad y transferibilidad de los parámetros para dos medidas de la estructura espacial: la proximidad al distrito comercial central y la accesibilidad al mercado laboral. Para hacer esta evaluación empleamos pruebas estadísticas clásicas junto con un test de equivalencia. Llegamos a la conclusión de que las predicciones realizadas usando parámetros transferidos de la estructura espacial eran equivalentes teniendo en cuenta el nivel de tolerancia elegido. Modelos hedónicos Transferibilidad espacial Prueba de equivalencia Estabilidad de parámetros

The Economic Significance of User-Generated Feedback

This paper examines the impact of user-generated feedback on price at a price comparison site or shopbot. It employs a modified hedonic price function to explore the use made by current potential consumers of the experience of past actual consumers in evaluating quality attributes that were not observable when the product was initially launched on to the market. Using a database of daily observations on 211 digital cameras traded on NexTag.com, we find that the product’s star rating, reflecting all the available individual assessments of the product, has a significant negative impact on the discount on the manufacturer’s recommended selling price at which the product is offered.

Hedonic Model of Segmentation with Horizontal Differentiated Housing

This paper investigates how the hedonic equilibrium is modified when discrete consumer heterogeneity with horizontal differentiated housing supply is assumed. Our results are threefold. First, discrete consumer heterogeneity leads to a segmentation of the hedonic price function at equilibrium and the discontinuity of the implicit price of environmental quality on the borders of the segments. Second, we demonstrate that horizontal differentiation can lead to a partial sorting of consumer demand for housing attributes at hedonic equilibrium. Finally, we show that according to model specification, the groupwise heterogeneity with horizontal differentiation can lead to modification of welfare assessment related to changes in environmental quality.

Revisiting the Hedonic Price Method to Assess the Implicit Price of Environmental Quality with Market Segmentation

The article highlights the role of heterogeneity in the formation of hedonic prices. The article distinguishes between continuous and groupwise heterogeneity. The distinction helps understanding two important points. First, the analysis of market equilibrium with groupwise heterogeneity makes explicit the role of participation and incentives compatibility constraints for groups of buyers. The case of continuous heterogeneity may be thought of as a limit case of groupwise heterogeneity when the number of groups goes to infinity and their masses go to zero. The hedonic price curve is then obtained as the solution of a differential equation resulting from a market clearing condition. Second, the article outlines that submarkets emerge from market equilibrium only in the case of groupwise heterogeneity. The existence of submarkets means that the hedonic price function is continuous but the implicit price of characteristics is discontinuous at endogenous threshold values separating submarkets. Major implications for the valuation of environmental quality follow on. Based on numerical simulations, the article gives some insights into the way significant biases and drawbacks in the estimation of the implicit price of environmental quality can arise if the usual two steps procedure is implemented.