Identification and Estimation of Hedonic Models

74 Pages Posted: 19 Aug 2003 Last revised: 4 Apr 2022

See all articles by Ivar Ekeland

Ivar Ekeland

University of British Columbia (UBC) - Faculty of Education; Université Paris Dauphine - CEREMADE

James J. Heckman

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Lars Nesheim

University College London; Institute for Fiscal Studies (IFS)

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Date Written: August 2003

Abstract

This paper considers the identification and estimation of hedonic models. We establish that in an additive version of the hedonic model, technology and preferences are generically identified up to affine transformations from data on demand and supply in a single hedonic market. For a very general parametric structure, preferences and technology are fully identified. This is true under a strong assumption of statistical independence of the error term. It is also true under the weaker assumption of mean independence of the error term. Much of the confusion in the empirical literature that claims that hedonic models estimated on data from a single market are fundamentally underidentified is based on linearizations that do not use all of the information in the model. The exact economic model that justifies widely used linear approximations has strange properties so the approximation is doubly poor. A semiparametric estimation method is proposed that is valid when a statistical independence assumption is valid. Alternatively, under the weaker condition of mean independence instrumental variables estimators can be applied to identify technology and preference parameters from a single market. They are justified by nonlinearities that are generic features of equilibrium in hedonic models.

Suggested Citation

Ekeland, Ivar and Heckman, James J. and Nesheim, Lars, Identification and Estimation of Hedonic Models (August 2003). NBER Working Paper No. w9910, Available at SSRN: https://ssrn.com/abstract=435500

Ivar Ekeland

University of British Columbia (UBC) - Faculty of Education ( email )

Université Paris Dauphine - CEREMADE ( email )

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James J. Heckman (Contact Author)

University of Chicago - Department of Economics ( email )

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Lars Nesheim

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