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Difference-in-Difference Hedonics

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  • Banzhaf, H. Spencer

Abstract

Traditional cross-sectional estimates of hedonic price functions theoretically can recover marginal willingness to pay for characteristics, but face endogeneity problems when some characteristics are unobserved. To help overcome such problems, economists have introduced difference-in-differences and other quasi-experimental econometric methods into the hedonic model. Unfortunately, the welfare interpretation of the estimands has not been clear. This paper shows that, when they condition on baseline data, they identify the "average direct unmediated effect" on prices from a change in characteristics. It further shows that this effect is a lower bound on welfare, specifically Hicksian equivalent surplus plus the change in profits. The paper illustrates these results with an application to toxic facilities' effects on housing prices.

Suggested Citation

  • Banzhaf, H. Spencer, 2019. "Difference-in-Difference Hedonics," MPRA Paper 101194, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101194
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    More about this item

    Keywords

    Hedonic Pricing; Housing Markets; Differentiated Products; Nonlinear Pricing;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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