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Estimating the marginal willingness to pay function without instrumental variables

Kelly Bishop and Christopher Timmins

Journal of Urban Economics, 2019, vol. 109, issue C, 66-83

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, including a source of endogeneity that has proven difficult to overcome. Here we outline a simple, likelihood-based estimation approach for recovering the marginal willingness-to-pay function that avoids this endogeneity problem. Using this framework, we find that marginal willingness-to-pay to avoid violent crime increases by sixteen cents with each additional incident per 100,000 residents. Accounting for the slope of the marginal willingness-to-pay function has significant impacts on welfare analyses.

Keywords: Crime; Hedonic demand; Willingness to pay (search for similar items in EconPapers)
JEL-codes: Q50 Q51 R21 R23 (search for similar items in EconPapers)
Date: 2019
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