Implicit Price Research Articles

Estimating the Implicit Price Elasticity of the Demand for Neighborhood Amenities: A Hedonic Approach

Estimating the Implicit Price Elasticity of the Demand for Neighborhood Amenities: A Hedonic Approach

Losses of Residential Utility from Budget Constraints on Preferences for Homes

Budget-constrained residential preferences differ from unconstrained residential preferences if residents mentally devalue unaffordable attributes’ levels of available homes in comparison with affordable ones. Budget-constrained and unconstrained utilities of 70 recent-mover respondents in Saskatoon SK in 1987 and 74 inner-city respondents in Windsor ON in 2020 are quantified for 12 generic attributes of homes in conjoint choice experiments. Budget constraints on their utilities for homes’ attributes’ levels are operationalized by superimposing marginal implicit prices from a hedonic housing price model in each city. Residential utilities are then statistically compared both through time and for subsamples within full samples, and losses of utility are predicted. Respondents will experience an approximate one-quarter and one-tenth loss of possible utility for a home in Saskatoon and Windsor, respectively, if they cannot afford their unconstrained most preferred attributes’ levels. Losses of utility are predicted even though budget-constrained utilities of subsamples of respondents are higher as hypothesized for affordable levels of four attributes, and lower for unaffordable levels of those attributes. In conclusion, theoretical and practical implications of these predictions of losses of residential utility are discussed for residents, housing providers and policymakers.

Estimating Socio-Cultural Services of Coastal Wetlands: A Case of Negombo Lagoon in Sri Lanka

Knowledge on social and cultural systems is essential for comprehensive understanding of ecosystem changes, monitoring biodiversity, development and implementation of resource management strategies. Social values of coastal landscapes reveal the attributes of locations and their relative importance for people. Aim of the study was to evaluate the cultural services and derive the monetary value of social landscape through valuing socio-cultural services of Negombo lagoon. A discrete choice experiment approach was used to estimate the individual’s preference towards social landscape by incorporating featured attributes. The individual preference was expressed through the marginal willingness to pay (MWTP) by integrating a monetary attribute into choice sets. Thus, the MWTP or the implicit price of social landscape attributes included in the choice task was estimated and then the total social landscape value was derived as 13,055 LKR per monthly per household. The social landscape values of Negombo lagoon demonstrated the important ecological, and socio-cultural knowledge, which should be integrated as guiding policies in ecosystem conservation and management strategies. Further, the challenging management paradigm for coastal and marine landscape of Negombo lagoon, and associated services should contain not only the biological and physical benefits but also socio- cultural values too.

Valuing access to urban greenspace using non-linear distance decay in hedonic property pricing

Modelling walking distance enables the observation of non-linearities in hedonic property pricing of accessibility to greenspace. We test a penalized spline spatial error model (PS-SEM), which has two distinctive features. First, the PS-SEM controls for the presence of a spatially autocorrelated error term. Second, the PS-SEM allows for continuous non-linear distance decay of the property price premium as a function of walking distance to greenspaces. As a result, compared with traditional spatial econometric methods, the PS-SEM has the advantage that data determines the functional form of the distance decay of the implicit price for greenspace accessibility. Our PS-SEM results from Oslo, Norway, suggest that the implicit price for greenspace access is highly non-linear in walking distance, with the functional form varying for different types of greenspaces. Our results caution against using simple linear distances and assumptions of log or stepwise buffer-based distance decay in property prices relative to pedestrian network distance to urban amenities. The observed heterogeneity in the implicit property prices for walking distance to greenspace also provides a general caution against using non-spatial hedonic pricing models when aggregating values of greenspace amenities for policy analysis or urban ecosystem accounting purposes.

Can respondent uncertainty be ignored when exploring heterogeneity in public preferences for air pollution treatment policies? Comparative results from choice experiment analysis

Based on choice experiment (CE), evaluating the public's heterogeneous preferences and willingness to pay (WTP) for air pollution treatment policies can provide useful social views for the reasonable formulation of treatment schemes. However, the application of CE contains an implicit assumption that respondents understand their real preferences and can make choices with complete certainty. In reality, for a variety of reasons, not all respondents are absolutely certain about their responses, this assumption distinctly is hard to be consistent with reality. To explore the impact of respondent uncertainty on the public's WTP and heterogeneous preferences for air pollution treatment policies, this study introduces the critical point and exponential weighting methods to deal with this uncertainty in the context of CE and conducts comparative analysis based on the random parameters logit (RPL) and latent classes models (LCM). The results show that, ignoring uncertainty leads to distortions in the public's WTP and preference characteristics. In the RPL models, on average, the WTP for attributes is overstated by 32.10%. Our results also reveal that, whether to consider uncertainty does not affect the ranking of the implicit prices of these attributes. After incorporating uncertainty into the analysis, respondents were divided into two potential groups with different preferences, namely the environment-focused group (79.44%) and the price-focused group (20.56%), which is quite distinct from research results of ignoring the uncertainty. Contribution of this study is not only to provide theoretical insights for exploring the effects of uncertainty on public preferences based on CE, but also to provide valuable guidance for policy makers to formulate more accurate and effective treatment measures.

Predicting diagnostic coding in hospitals: individual level effects of price incentives

The purpose of this paper is to test if implicit price incentives influence the diagnostic coding of hospital discharges. We estimate if the probability of being coded as a complicated patient was related to a specific price incentive. This paper tests empirically if upcoding can be linked to shifts in patient composition through proxy measures such as age composition, length of stay, readmission rates, mortality- and morbidity of patients. Data about inpatient episodes in Norway in all specialized hospitals in the years 1999–2012 were collected, N = 11 065 330. We examined incentives present in part of the hospital funding system. First, we analyse trends in the proxy measures of diagnostic upcoding: can hospital behavioural changes be seen over time with regards to age composition, readmission rates, length of stay, comorbidity and mortality? Secondly, we examine specific patient groups to see if variations in the price incentive are related to probability of being coded as complicated. In the first years (1999–2003) there was an observed increase in the share of episodes coded as complicated, while the level has become more stable in the years 2004–2012. The analysis showed some indications of upcoding. However, we found no evidence of widespread upcoding fuelled by implicit price incentive, as other issues such as patient characteristics seem to be more important than the price differences. This study adds to previous research by testing individual level predictions. The added value of such analysis is to have better case mix control. We observe the presence of price effects even at individual level.

Assessing the Effects of a Tobacco Tax Reform on the Industry Price-Setting Strategy.

In July 2020, the Executive Power submitted Bill no. 3887-2020 as the first step towards a wide reform of the Brazilian tax system. It will replace the current PIS/COFINS (charged on turnover of companies) by the CBS (a tax on goods and services), which includes a special regime for cigarettes. The novelty is that the specific cigarette tax will be charged on the highest retail price per cigarette brand across the country. This research simulates three scenarios that differ according to the price-setting strategy of the tobacco industry in reaction to the proposed tax reform. In all simulations, the tax reform would result in considerably higher cigarette prices, lower cigarette consumption, higher tax collection, and an implicit minimum price that is far above the current official price floor. Furthermore, the price dispersion and cross-border shopping across states would be reduced because prices and tax burden per brand would tend to be the same across the country due to the dominant price-setting strategy in the cigarette industry.

It’s about the process, not the result: An fMRI approach to explore the encoding of explicit and implicit price information

This research examines the neurophysiological correlates of consumers’ price memory processes. We focus on the explicit and implicit dimensions of consumers’ price knowledge and use an experimental functional Magnetic Resonance Imaging (fMRI) study to assess how the encoding of task-dependent price memory affects the choice process and neural activation. The findings of our study add to the field of consumer neuroscience by demonstrating how neural correlates of explicit and implicit task-dependent price memory can shed light on processes that guide consumer decision-making. Over the course of our experiment we found that consumers did not always make consistent decisions, but that their decisions were influenced by explicit components of price memory. Implicit price memory components seem to have a more supportive role in the decision-making process. In summary, we found that price memory is a dynamic construct that is influenced by unconscious and neurophysiological processes, and we conclude that a neurophysiological perspective can add value for consumer and marketing research.

English

In developing countries, milk quality characteristics are not maintained by the milk producers and the middlemen. This study initially estimates the influence of various milk quality attributes on its price and then estimate the effect of socio-demographic characteristics on the marginal price of the milk components. Data collected from milk consumers through personal interview method, and milk sample took from the same consumers are used to estimate a two-stage hedonic model. In the first stage, prices were estimated for milk components and in the second stage, implicit price of each component was used as the dependent variable. The first stage results show that fat, solids-not-fat, total plate counts, color, and pleasant aroma have a significant impact on the milk price. The second stage results indicate that fat and solids-not-fat values are a function of the sociodemographic characteristics of consumers. To maintain milk quality attributes, we recommend the establishment of chilling centers for maintenance of quality, checkpoints and mobile laboratories for testing quality, provision of basic testing equipment at subsidized rates, hygiene awareness program for stakeholders in value chain, health risk awareness for consumers consuming raw milk and its products, and introduction and popularization of enzyme-based lactoperoxidase preservation technology.

Quantity or quality of fish in a developing country: A hedonic analysis

ABSTRACT The mass production of fish in a developing country like Bangladesh has ensured food security with quality of fish hardly. The purpose of this study thus is to identify the implicit price of the fish quality characteristics. In total, 200 consumers were randomly interviewed from three different coastal districts of Bangladesh where both farmed and wild fish were available. The consumers were interviewed using a semi-structured questionnaire during their purchase and the semi-log functional form of regression model was applied to explore the implicit price of the fish quality characteristics. The findings indicated that consumers’ high payment (at least 61% price premium) on wild fish for its taste, size, and eye character. However, it was found that consumers preferred farmed fish for its freshness and bright color while they disfavored swollen abdomen and odor. The results also revealed that consumers paid 18% more for the farmed fish freshness and 9% less for the fish with odor and swollen abdomen. It was also noticed that quantity of the fish and presence of bones were the influential factors of reducing the price of both fish. The study implies that fish farmers need to produce fish considering quality characteristics rather than producing more since good food ensures good health. The study refers to the implementation of the ‘Government Fishery Act’ for increasing the wild fish stock including different small indigenous species, catfish, and hilsha for consumers’ demands and preferences.

Geospatial Heterogeneity in Monetary Value of Proximity to Waterfront Ecosystem Services in the Gulf of Mexico

Open spaces, including waterfront areas, are critical to coastal communities and provide many benefits, including recreation opportunities, economic development, ecological benefits, and other ecosystem services. However, it is not clear how values of waterfront ecosystem services vary across geographical areas which prevents development and adoption of site-specific natural resource conservation plans and suitable long-term land management strategies. This study estimated the monetary value of distance to different waterfront types in coastal counties of Mississippi and Alabama (U.S.) using a geographically weighted regression (GWR) approach as an extension to a traditional hedonic pricing method (HPM). In addition, the study utilized publicly available data from the U.S. Census Bureau instead of certified rolls of county property assessors and Multiple Listing Service (MLS) data which can be costly and difficult to obtain. Residents valued most waterfront types which was reflected in greater assessed prices for houses in proximity to these waterfronts. However, the value of ecosystem services associated with waterfronts differed geospatially. The marginal implicit prices ranged from −$6343 to $6773 per km depending on a waterfront type. These estimates will be useful to city developers, land-use planners, and other stakeholders to make more informed and balanced decisions related to natural resource preservation associated with coastal areas, land-use planning, and zoning. In addition, information from this study can be used in developing healthy living environments where local economy can benefit from increased property tax revenues associated with waterfronts and their ecosystem services.

Quality of life in Chinese cities

The Rosen-Roback spatial equilibrium theory states that cross-city variations in wages and housing prices reflect urban residents' willingness to pay for urban amenities or quality of life. This paper is the first to quantify and rank the quality of life in Chinese cities based on the Rosen-Roback model. Using the 2005 1% Population Intercensus Survey data, we estimate the wage and housing hedonic models. The coefficients of urban amenity variables in both hedonic models are considered the implicit prices of amenities and are used as the weights to compute the quality of life for each prefecture-level city in China. In general, provincial capital cities and cities with nice weather, good air quality, and accessible public transit have high quality of life. We also find that urban quality of life is positively associated with the subjective well-being of urban residents.

A Non-Market Valuation Approach to Environmental Cost-Benefit Analysis for Sanitary Landfill Project Appraisal

Extensive non-engineered landfilling practice in developing countries has raised environmental concerns, but operating a sanitary landfill appears infeasible due to financial incapability. This study aims to determine the feasibility of a sanitary landfill project by including its environmental values into the project appraisal while simultaneously applying three policy-relevant methods—non-market valuation, benefits transfer, and cost-benefit analysis—in two study areas in Peninsular Malaysia. The non-market valuation study used choice modeling, a questionnaire-based technique, to elicit willingness to pay among 624 households toward the environmental attributes of the sanitary landfill. Their responses resulted in the monetary values of the environmental attributes by referring to implicit prices of leachate discharge, bad odor, disease vector and view. The implicit prices of bad odor (RM2.29 per month) and view (RM3.59 per month) in the two study areas were transferable and used as a proxy of additional solid waste disposal payment in environmental cost-benefit analysis. Positive net present value offers empirical evidence of the feasibility of the sanitary landfill project. The findings show that the inclusion of environmental values in project appraisals increases the chances of implementing sanitary landfills, providing a new approach to address the environmental concerns in developing countries. Future research should consider the external costs along with the external benefits to allow for a comprehensive comparison between environmental values in environmental cost-benefit analysis.

Valuing urban green amenities with an inequality lens

Considering rapid urbanization worldwide, concern is growing that the resulting loss of green space affects welfare negatively. This study assesses how implicit prices of green amenities differ across apartments in different price groups to assess distributional impact of urban green amenities. Additionally, the paper proposes adjustments to enhance the standard hedonic model and increase comparability of estimates across study areas. Sales data for 6614 apartments in the suburbs of Stockholm, Sweden, an area that is relatively more prone to land conversion, were combined with GIS data on green urban areas and assessed in a simple log-linear model and quantile regression model. The results suggest that forested area even in a in a city with abundant green areas, have an impact on apartment prices. The price effect of green amenities differs strongly across both categories of ‘green area’ such as parks and forests, as well as, between the mean and the ends of the distribution of apartment prices. The proposed adjustments and results could be of use to other study areas.

Hedonic evaluation of coral reef fish prices on a direct sale market

Using two-stage Rosen’s model, this evaluation aims to deduce the implicit prices of the coral-reef fish species most commonly encountered in road-side market in Moorea (French Polynesia) during 2014–2015, from the prices of bundles of species, called tuis. Index value are calculated which vary, all else equal, between 33% (Selar) and 137% (Acanthurus) of the price of the reference species (Scarus). Estimating translogarithmic specifications allow the identification of positive cross-species elasticities which imply complementarity between reef species in each tui. The composition of tuis is therefore a market strategy to enhance the value of catches. These results demonstrate the relevance of empirical economic analysis in improving the understanding of small-scale coral-reef fisheries in the Pacific.

Wine price determinants. Is there a homogeneous international standard?

This article presents an international comparison of the main determinants of wine prices in specialist online wine shops. Hedonic price functions were estimated for 9624 wines spread among four datasets from France, Italy, Germany and Australia. To explain price variation data was collected on wine classification, closure type, wine origin, medals or awards, vintage, alcohol content, color, and grape variety. Results from quantile regression models show that the wine vintage is a common price driver in all markets and quantiles. A quite similar effect was found for alcohol content. In terms of color, the implicit prices for red and white wines are also structurally different between countries, particularly in origin, blend, closure, awards and age. Thus, the markets should be assumed as heterogeneous, and the extrapolation of the results from one market to another may lead to erroneous management decisions.

The Price of Coastal Erosion and Flood Risk: A Hedonic Pricing Approach

Accelerated coastal erosion and elevated risks of flooding due to global warming put enormous burden on the ecosystems and economic health of coastal communities. Optimal policies to lessen these negative impacts require an estimation of their costs and benefits. The aim of this paper is to calculate the costs of beach erosion and flood risk through the valuation of property prices in Hilton Head Island, a barrier island located in South Carolina, USA. Spatial lag hedonic pricing was introduced in order to account for spatial autocorrelation in the dataset. The results show that properties that are located within the zone of high, or very high, flood risk experience a 15.6% reduction in value. The implicit price of being located close to an eroded beach is approximately 26% of the price of an oceanfront property. However, this negative impact on property value diminishes with distance from the shoreline.

ESTIMATING DEMAND FOR GOOD CLIMATE AND AIR QUALITY IN TAIWAN

We measure the amenity values of climate and air quality in Taiwan using the two-step hedonic price method (HPM). Separate hedonic housing price equations, one for each of three metropolitan areas that represent respective housing markets in Northern, Central, and Southern Taiwan, are estimated. We find evidence of a significant impact of climate and air quality on housing prices. As expected, residents in Taiwan prefer a warmer winter, cooler summer, lower humidity, and better air quality. Based on the results of the housing price regression, we compute implicit prices for environmental amenities, and then pool observations from all three metropolitan areas to estimate the demand for environmental amenities. The estimated demand functions for environmental amenities are used to evaluate the benefits and losses from changes in climate and air quality in Taiwan. Our results show that, compared to the benefits of a higher temperature in January, the losses from the rise in temperature in July are much higher in such a way that global warming is resulting in significant net losses in Taiwan. The area-specific welfare analysis in this study will help in informing climate change policy formulation and decision-making in Taiwan.

Convergent Validity of Satellite and Secchi Disk Measures of Water Clarity in Hedonic Models

Budget-constrained environmental agencies across the United States are limited in their ability to monitor water quality changes using traditional in situ sampling. Satellite-based monitoring systems represent a lower-cost alternative. It is unclear, however, how this transition will impact nonmarket valuation estimates of perceived water quality. To answer this question, we merge housing information with Secchi depth and satellite estimates of water clarity from over 100 lakes in Wisconsin. A comparison of hedonic price functions reveals satellite estimates of water clarity provide a stronger statistical fit of housing price and produce implicit prices up to 11% larger in magnitude.

The Norwegian Vehicle Electrification Policy and Its Implicit Price of Carbon

The rapid market uptake of battery and hybrid electric cars in Norway is unparalleled. We examine the fiscal policy instruments behind this development. In essence, the Norwegian policy consists in taxing internal combustion engine vehicles rather than subsidizing electric ones. There are 14 different fiscal incentives in place bearing on vehicles, fuel, or road use. All of them are in some way CO2-differentiated. In the tradition of positive economics, we derive the price of carbon implicit in each policy instrument and in the total package of taxes and subsidies. The price of carbon characterizing the trade-off between conventional and battery electric cars in Norway as of 2019 exceeds €1370 per ton of CO2. For light and heavy-duty commercial vehicles the corresponding prices have been conservatively estimated at €640 and €200 per ton of CO2, respectively. In addition, the penalty incurred by automakers for not meeting their 2020/2021 target under EU Regulation 2019/631 corresponds to a carbon price of the order of €340 per ton of CO2. As compared to the price of emission allowances in the European cap-and-trade system, the price of carbon paid by automakers and Norwegian motorists is one or two orders of magnitude higher.