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Hedonic Markets and Explicit Demands: Bid-Function Envelopes for Public Services, Neighborhood Amenities, and Commuting Costs

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Abstract

Hedonic regressions with house value as the dependent vaqriable are widely used to study the value of public services and amenities. This paper builds on the theory of household bidding and sorting to derive a bid function envelope, which provides a form for these regressions. This approach uses a general characterization of household heterogeneity, yields estimates of the price elasticities of demands for services and amenities directly from the hedonic with no need for a Rosen two-step procedure, and provides tests of key hypotheses about household sorting. An application to data from Cleveland in 2000 yields precise estimates of price elasticities for school quality, distance from environmental hazards, and neighborhood ethnic composition. The results support the sorting hypotheses and indicate that household preferences are very heterogeneous, with some households placing a negative value on many "amenities."

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  • John Yinger, 2009. "Hedonic Markets and Explicit Demands: Bid-Function Envelopes for Public Services, Neighborhood Amenities, and Commuting Costs," Center for Policy Research Working Papers 114, Center for Policy Research, Maxwell School, Syracuse University.
    • Handle: RePEc:max:cprwps:114
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    1. David Stadelmann & Reiner Eichenberger, 2014. "Public debts capitalize into property prices: empirical evidence for a new perspective on debt incidence," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(3), pages 498-529, June.

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    More about this item

    Keywords

    Hedonics; capitalization; bidding; sorting;
    All these keywords.

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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