The Role of Information in the Rosen-Roback Framework

Xuwen Gao, Ran Song and Christopher Timmins

No 28943, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we study the role of information in non-market valuation. We develop a variant of the Rosen-Roback model of inter-urban sorting that incorporates public access to information about air quality, and demonstrate that information constraints create a wedge between the revealed and true hedonic prices. Moreover, the direction and the magnitude of that wedge depends on the individual’s perception bias. We empirically test our theoretical predictions by leveraging a natural experiment – the unexpected disclosure of PM2.5 data in China. We find that perception bias before the data disclosure leads to a downward estimation bias in hedonic valuation. The hedonic price of avoiding PM2.5 exposure increases substantially from 171 to 336 Chinese Yuan in response to the information shock. Our work sheds light on the application of Rosen-Roback theory for non-market valuation in countries where the public access to information is restricted.

JEL-codes: Q51 Q53 R23 (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-ene and nep-env
Note: EEE
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