A Mixed Index Approach to Identifying Hedonic Price Models

Posted: 17 Jul 2008

See all articles by David M. Brasington

David M. Brasington

University of Cincinnati - Department of Economics

Diane Hite

Auburn University - Department of Agricultural Economics and Rural Sociology

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Date Written: May 2008

Abstract

Recent literature suggests identifying house price hedonic regressions by using instrumental variables, spatial statistics, the borders approach, panel data, and other techniques. We present an empirical application of a mixed index model, first proposed by Bowden [Bowden, R.J., 1992. Competitive selection and market data: the mixed-index problem. The Review of Economic Studies 59(3):625-633.] to identify hedonic price regressions. We compare the performance of the mixed index model to a traditional hedonic model and to a hedonic model that includes characteristics of the buyer of each house. We find the mixed index model outperforms the other models based on bootstrap distributions of predicted housing values, prediction variance, and predicted policy effects. The mixed index model distributions are less skewed and kurtotic than the other models, suggesting it more closely satisfies the classical linear regression assumption of normally distributed errors. Compared to the mixed index model, the traditional hedonic overstates the importance of lot size and school quality to house price and understates the importance of environmental quality.

Keywords: House price hedonic Identification, School quality, Environmental quality, Capitalization

JEL Classification: C39, C52, R0

Suggested Citation

Brasington, David M. and Hite, Diane, A Mixed Index Approach to Identifying Hedonic Price Models (May 2008). Regional Science and Urban Economics, Vol. 38, No. 3, 2008, Available at SSRN: https://ssrn.com/abstract=1162012

David M. Brasington

University of Cincinnati - Department of Economics ( email )

Carl H. Lindner Hall 2925 Campus Green Drive
PO Box 0371
Cincinnati, OH 45221-0211
United States

Diane Hite (Contact Author)

Auburn University - Department of Agricultural Economics and Rural Sociology ( email )

Comer Hall
Auburn, AL 36849
United States
334-844-5655 (Phone)
334-844-5639 (Fax)

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