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Hedonic Prices and Implicit Markets: Estimating Marginal Willingness to Pay for Differentiated Products Without Instrumental Variables

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  • Kelly C. Bishop
  • Christopher Timmins

Abstract

The hedonic model of Rosen (1974) has become a workhorse for valuing the characteristics of differentiated products despite a number of well-documented econometric problems. For example, Bartik (1987) and Epple (1987) each describe a source of endogeneity in the second stage of Rosen's procedure that has proven difficult to overcome. In this paper, we propose a new approach for recovering the marginal willingness-to-pay function that altogether avoids these endogeneity problems. Applying this estimator to data on large changes in violent crime rates, we find that marginal willingness-to-pay increases by ten cents with each additional violent crime per 100,000 residents.

Suggested Citation

  • Kelly C. Bishop & Christopher Timmins, 2011. "Hedonic Prices and Implicit Markets: Estimating Marginal Willingness to Pay for Differentiated Products Without Instrumental Variables," NBER Working Papers 17611, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17611
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    References listed on IDEAS

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    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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