Working Paper: NBER ID: w28943
Authors: Xuwen Gao; Ran Song; Christopher Timmins
Abstract: In this paper, we study the role of information in non-market valuation. We develop a variant of the Rosen-Roback model of inter-urban sorting that incorporates public access to information about air quality, and demonstrate that information constraints create a wedge between the revealed and true hedonic prices. Moreover, the direction and the magnitude of that wedge depends on the individual’s perception bias. We empirically test our theoretical predictions by leveraging a natural experiment – the unexpected disclosure of PM2.5 data in China. We find that perception bias before the data disclosure leads to a downward estimation bias in hedonic valuation. The hedonic price of avoiding PM2.5 exposure increases substantially from 171 to 336 Chinese Yuan in response to the information shock. Our work sheds light on the application of Rosen-Roback theory for non-market valuation in countries where the public access to information is restricted.
Keywords: Information; Rosen-Roback Model; Hedonic Valuation; Air Quality; China
JEL Codes: Q51; Q53; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Information availability (L15) | Hedonic pricing of air quality (Q51) |
| Disclosure of PM2.5 data (Y10) | Willingness to pay (WTP) for air quality improvements (Q51) |
| Willingness to pay (WTP) for air quality improvements (Q51) | Hedonic price estimation biases (D11) |
| Information constraints (D10) | Wedge between revealed hedonic price and true implicit value of clean air (Q51) |
| Information availability (L15) | Perception biases (D91) |