Working Paper: NBER ID: w21485
Authors: H. Spencer Banzhaf
Abstract: Traditional cross-sectional estimates of hedonic price functions can recover marginal willingness to pay for characteristics, but face endogeneity problems for estimating non-marginal welfare measures. I show that when panel data on household demands are available, one can construct a second-order approximation to non-marginal welfare measures using only the first-stage marginal prices. With repeated cross sections of product prices, the measure can be set identified or, under a single-crossing restriction, point identified. Bounds also can be constructed when there are mobility costs. Finally, a variant remains valid when individual preferences shift over time.
Keywords: Hedonic Pricing; Welfare Measurement; Panel Data; Endogeneity
JEL Codes: D46; D61; H4; Q51; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| household demands (D12) | nonmarginal welfare measures (D69) |
| first-stage marginal prices (D40) | nonmarginal welfare measures (D69) |
| repeated cross-sections of product prices (E30) | welfare measures (I38) |
| mobility costs (J62) | identification of welfare measures (I38) |
| changing individual preferences (D01) | applicability of methodology (B41) |