Abstract

http://ssrn.com/abstract=1292479
 


 



Inconsistency in Welfare Inferences from Distance Variables in Hedonic Regressions


Justin M. Ross


Indiana University - School of Public & Environmental Affairs

Michael C. Farmer


Texas Tech University - Department of Agricultural and Applied Economics

Clifford A. Lipscomb


Greenfield Advisors

October 16, 2009

Journal of Real Estate Finance and Economics, Forthcoming

Abstract:     
In hedonic analysis, a common approach for eliciting information regarding the welfare significance of some landmark or (dis)amenity is to control for its distance from each observation. Unfortunately, the effects of distances to amenities on housing prices are generally not consistent indicators of the true price impact of that amenity. Instead these variables serve as proxies for the relative position of every observation in space. Whenever a household considers more than two landmarks in a housing purchase, distance variable parameter estimates are simply the best linear fitted weights for that multiple criteria location decision. Simulations illustrate extreme sensitivity in parameter estimates to the researcher’s choice of landmarks. One strategy models the location of each observation directly instead of its distances to amenities. Using the quadratic measure of longitude and latitude from an arbitrary fixed location controls for location effects on price to assure unbiased estimates of non-distance variable regressors.

Number of Pages in PDF File: 30

Keywords: Hedonic, distance, sensitivity analysis

JEL Classification: R0, Q5, C8

Accepted Paper Series


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Date posted: November 3, 2008 ; Last revised: June 18, 2011

Suggested Citation

Ross, Justin M. and Farmer, Michael C. and Lipscomb, Clifford A., Inconsistency in Welfare Inferences from Distance Variables in Hedonic Regressions (October 16, 2009). Journal of Real Estate Finance and Economics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1292479

Contact Information

Justin M. Ross (Contact Author)
Indiana University - School of Public & Environmental Affairs ( email )
1315 East Tenth Street
Bloomington, IN 47405
United States

Michael C. Farmer
Texas Tech University - Department of Agricultural and Applied Economics ( email )
Box 42132
Lubbock, TX 79409-2132
United States
Clifford A. Lipscomb
Greenfield Advisors ( email )
1870 The Exchange SE
Suite 100
Atlanta, GA 30339
United States
770-951-7028 (Phone)
770-951-7030 (Fax)
HOME PAGE: http://www.greenfieldadvisors.com
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