Credit Constraints and Bias in Hedonic Amenity Valuations

John Heilbron

MPRA Paper from University Library of Munich, Germany

Abstract: I demonstrate that credit constraints bias price-based (cf. rent-based) hedonic valuations of local public amenities. Mis-measurement of the private value of local public amenities distorts welfare analysis and could cause under-investment in amenities. I introduce a method to measure this bias by applying the hedonic framework to a problem of mortgage choice in the presence of credit constraints. I use Fannie Mae pricing grids and private mortgage insurance requirements to construct borrower-level mortgage choice menus and estimate the extent of bias among fixed-rate agency loan borrowers. I find evidence that traditional hedonic techniques understate the value of amenities by ~50%.

Keywords: Household Finance; Housing Demand (search for similar items in EconPapers)
JEL-codes: D12 H81 R21 (search for similar items in EconPapers)
Date: 2021-11-19
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:125713

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