Hedonic Markets and Explicit Demands: Bid-Function Envelopes for Public Services, Neighborhood Amenities, and Commuting Costs

Center for Policy Research Working Paper No. 114

71 Pages Posted: 13 Apr 2011

See all articles by John Yinger

John Yinger

Syracuse University, Maxwell School of Citizenship and Public Affairs

Date Written: March 1, 2009

Abstract

Hedonic regressions with house value as the dependent variable are widely used to study the value of public services and amenities. This paper builds on the theory of household bidding and sorting to derive a bid function envelope, which provides a form for these regressions. This approach uses a general characterization of household heterogeneity, yields estimates of the price elasticities of demand for services and amenities directly from the hedonic with no need for a Rosen two-step procedure, and provides tests of key hypotheses about household sorting. An application to data from Cleveland in 2000 yields precise estimates of price elasticities for school quality, distance from environmental hazards, and neighborhood ethnic composition. The results support the sorting hypotheses and indicate that household preferences are very heterogeneous, with some households placing a negative value on many "amenities."

Keywords: Hedonics, capitalization, bidding, sorting

JEL Classification: H73, R21

Suggested Citation

Yinger, John, Hedonic Markets and Explicit Demands: Bid-Function Envelopes for Public Services, Neighborhood Amenities, and Commuting Costs (March 1, 2009). Center for Policy Research Working Paper No. 114, Available at SSRN: https://ssrn.com/abstract=1807274 or http://dx.doi.org/10.2139/ssrn.1807274

John Yinger (Contact Author)

Syracuse University, Maxwell School of Citizenship and Public Affairs ( email )

Center for Policy Research
426 Eggers Hall
Syracuse, NY 13244-1020
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