When Does Static Willingness to Pay Mislead? A Framework for Dynamic Hedonic Valuation

Josephine Auer

Papers from arXiv.org

Abstract: Many policy counterfactuals depend on how consumers value product attributes such as sugar, sodium, caffeine, alcohol, or emissions. Standard hedonic and differentiated-products models interpret these valuations statically. That interpretation is restrictive when attributes are habit forming: observed prices then reflect both contemporaneous marginal value and the continuation value generated by current consumption. I develop a nonparametric revealed-preference framework for dynamic hedonic valuation, deriving necessary and sufficient conditions for rationalising observed prices and choices. Using household scanner data on cereal purchases, I show that the hedonic representation places real restrictions on prices, while habit formation improves behavioural coherence conditional on that representation. The results provide a diagnostic for when static attribute valuation is justified and when prices reveal more than contemporaneous marginal values.

Date: 2026-03, Revised 2026-05
New Economics Papers: this item is included in nep-dcm and nep-upt
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