A Theory-Based Approach to Hedonic Price Regressions with Time-Varying Unobserved Product Attributes: The Price of Pollution

Patrick Bajari, Jane Cooley, Kyoo il Kim () and Christopher Timmins
Authors registered in the RePEc Author Service: Jane Cooley Fruehwirth

No 15724, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a new strategy for a pervasive problem in the hedonics literature--recovering hedonic prices in the presence of time-varying correlated unobservables. Our approach relies on an assumption about homebuyer rationality, under which prior sales prices can be used to control for time-varying unobservable attributes of the house or neighborhood. Using housing transactions data from California's Bay Area between 1990 and 2006, we apply our estimator to recover marginal willingness to pay for reductions in three of the EPA's "criteria" air pollutants. Our findings suggest that ignoring bias from time-varying correlated unobservables considerably understates the benefits of a pollution reduction policy.

JEL-codes: C01 Q51 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-ecm, nep-env and nep-ure
Note: EEE IO PE
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Citations: View citations in EconPapers (9)

Published as A Theory-Based Approach to Hedonic Price Regression s with Time-Varying Unobserved Product Attributes: The Price of Polluti on (with Jane Cooley, Kyoo- Il Kim, and Christopher Timmins), American Economic Review , 102(5), 1898- 2926, 2012.

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