Difference-in-Difference Hedonics

Spencer Banzhaf

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Hedonic Pricing; Housing Markets; Differentiated Products; Nonlinear Pricing (search for similar items in EconPapers)
JEL-codes: D4 D6 Q5 R3 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-ecm, nep-ore and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Difference-in-Differences Hedonics (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:101194

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