Using Frontier Models to Mitigate Omitted Variable Bias in Hedonic Pricing Models: A Case Study for Air Quality in Bogotá, Colombia

32 Pages Posted: 13 Jun 2011

See all articles by Fernando Carriazo

Fernando Carriazo

College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology

Richard Ready

Agricultural University of Norway

James S. Shortle

Pennsylvania State University - College of Agricultural Sciences - Department of Agricultural Economics and Rural Sociology

Date Written: March 16, 2011

Abstract

Hedonic pricing models use property value differentials to value changes in environmental quality. If unmeasured quality attributes of residential properties are correlated with an environmental quality measure of interest, conventional methods for estimating implicit prices will be biased. Because many unmeasured quality measures tend to be asymmetrically distributed across properties, it may be possible to mitigate this bias by estimating a heteroskedastic frontier regression model. This approach is demonstrated for a hedonic price function that values air quality in Bogotá, Colombia.

Keywords: hedonic pricing model, omitted variables, air quality, frontier model

JEL Classification: Q51, Q53

Suggested Citation

Carriazo, Fernando and Ready, Richard and Shortle, James S., Using Frontier Models to Mitigate Omitted Variable Bias in Hedonic Pricing Models: A Case Study for Air Quality in Bogotá, Colombia (March 16, 2011). Documento CEDE No. 2011-11, Available at SSRN: https://ssrn.com/abstract=1862311 or http://dx.doi.org/10.2139/ssrn.1862311

Fernando Carriazo (Contact Author)

College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology ( email )

University Park, PA 16802-3306
United States

Richard Ready

Agricultural University of Norway

James S. Shortle

Pennsylvania State University - College of Agricultural Sciences - Department of Agricultural Economics and Rural Sociology ( email )

University Park, PA 16802-3306
United States

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