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Do Discrete Choice Approaches to Valuing Urban Amenities Yield Different Results Than Hedonic Models?

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  • Paramita Sinha
  • Martha L. Caulkins
  • Maureen L. Cropper

Abstract

Amenities that vary across cities are typically valued using either a hedonic model, in which amenities are capitalized into wages and housing prices, or a discrete model of household location choice. In this paper, we use the 2000 Public Use Microdata Sample (PUMS) to value climate amenities using both methods. We compare estimates of marginal willingness to pay (MWTP), allowing preferences for climate amenities to vary by location. We find that mean MWTP for warmer winters is about twice as large using the discrete choice approach as with the hedonic approach; mean MWTP for cooler summers is approximately the same. The two approaches differ, however, in their estimates of taste sorting. The discrete choice model implies that households with the highest MWTP for warmer winters locate in cities with the mildest winters, while the hedonic model does not. Differences in estimates are due to primarily to two factors: (1) the discrete choice model incorporates the psychological costs of moving from one’s birthplace, which the hedonic models do not; (2) the discrete choice model uses information on market shares (i.e., population) in estimating parameters, which the hedonic model does not.

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  • Paramita Sinha & Martha L. Caulkins & Maureen L. Cropper, 2018. "Do Discrete Choice Approaches to Valuing Urban Amenities Yield Different Results Than Hedonic Models?," NBER Working Papers 24290, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24290
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    Cited by:

    1. Sofia B. Villas‐Boas & Céline Bonnet & James Hilger, 2021. "Random Utility Models, Wine and Experts," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(2), pages 663-681, March.
    2. Sinha, Paramita & Caulkins, Martha & Cropper, Maureen, 2021. "The value of climate amenities: A comparison of hedonic and discrete choice approaches," Journal of Urban Economics, Elsevier, vol. 126(C).

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    More about this item

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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