Working Paper: NBER ID: w15724
Authors: Patrick Bajari; Jane Cooley; Kyoo Il Kim; Christopher Timmins
Abstract: We propose a new strategy for a pervasive problem in the hedonics literature--recovering hedonic prices in the presence of time-varying correlated unobservables. Our approach relies on an assumption about homebuyer rationality, under which prior sales prices can be used to control for time-varying unobservable attributes of the house or neighborhood. Using housing transactions data from California's Bay Area between 1990 and 2006, we apply our estimator to recover marginal willingness to pay for reductions in three of the EPA's "criteria" air pollutants. Our findings suggest that ignoring bias from time-varying correlated unobservables considerably understates the benefits of a pollution reduction policy.
Keywords: Hedonic Pricing; Air Quality; Pollution; Housing Market; Willingness to Pay
JEL Codes: C01; Q51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Housing prices (R31) | Pollution levels (Q53) |
| Pollution levels (Q53) | Marginal willingness to pay (MWTP) (D11) |
| Ignoring time-varying correlated unobservables (C32) | Understates benefits of pollution reduction policies (Q52) |
| Time-varying unobservables (C32) | Implicit price for PM10 (P22) |