Identification and Estimation of Hedonic Models

75 Pages Posted: 22 Oct 2003  

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)

Multiple version iconThere are 3 versions of this paper

Date Written: September 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 empircial 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.

Keywords: additive hedonic models, semiparametric estimation

JEL Classification: C31

Suggested Citation

Ekeland, Ivar and Heckman, James J. and Nesheim, Lars, Identification and Estimation of Hedonic Models (September 2003). IZA Discussion Paper No. 853; CESifo Working Paper Series No. 1031. Available at SSRN: https://ssrn.com/abstract=444522

Ivar Ekeland

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

Université Paris Dauphine - CEREMADE ( email )

Place du Marechal de Lattre de Tassigny
Paris Cedex 16, 75775
France

James J. Heckman (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-0634 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

American Bar Foundation

750 N. Lake Shore Drive
Chicago, IL 60611
United States

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Lars Nesheim

University College London ( email )

Gower Street
London
United Kingdom

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Paper statistics

Downloads
235
Rank
93,531
Abstract Views
1,723