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Hedonic Vices: Fixing Inferences about Willingness to Pay in Recent House-Value Studies 1

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  • Yinger, John
  • Nguyen-Hoang, Phuong

Abstract

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.

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  • Yinger, John & Nguyen-Hoang, Phuong, 2016. "Hedonic Vices: Fixing Inferences about Willingness to Pay in Recent House-Value Studies 1," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 7(2), pages 248-291, July.
    • Handle: RePEc:cup:jbcoan:v:7:y:2016:i:02:p:248-291_00
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    Cited by:

    1. GLUMAC Brano & DES ROSIERS François, 2018. "Real estate and land property automated valuation systems: A taxonomy and conceptual model," LISER Working Paper Series 2018-09, Luxembourg Institute of Socio-Economic Research (LISER).
    2. Mathilde Poulhes, 2017. "From Latin Quarter to Montmartre Investigating Parisian Real-Estate Prices," Working Papers 2017-13, Center for Research in Economics and Statistics.
    3. Livy, Mitchell R., 2017. "The effect of local amenities on house price appreciation amid market shocks: The case of school quality," Journal of Housing Economics, Elsevier, vol. 36(C), pages 62-72.
    4. Yinger, John, 2021. "The price of access to jobs: Bid-function envelopes for commuting costs✰," Journal of Housing Economics, Elsevier, vol. 51(C).

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