Working Paper: NBER ID: w17611
Authors: Kelly C. Bishop; Christopher Timmins
Abstract: The hedonic model of Rosen (1974) has become a workhorse for valuing the characteristics of differentiated products despite a number of well-documented econometric problems. For example, Bartik (1987) and Epple (1987) each describe a source of endogeneity in the second stage of Rosen's procedure that has proven difficult to overcome. In this paper, we propose a new approach for recovering the marginal willingness-to-pay function that altogether avoids these endogeneity problems. Applying this estimator to data on large changes in violent crime rates, we find that marginal willingness-to-pay increases by ten cents with each additional violent crime per 100,000 residents.
Keywords: Hedonic Pricing; Willingness to Pay; Violent Crime
JEL Codes: Q51; R0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| incidence of violent crime (K42) | MWTP for public safety (R48) |
| naive estimators (C51) | biased estimates of total willingness to pay for crime reductions (J17) |
| nonmarginal reductions in crime (K42) | MWTP (R48) |