Hedonic regressions are one of the most commonly used techniques in applied microeconomics for the study differentiated product markets. Hedonic regressions date back at least 80 years (see Waugh 1928) and have been an active research area for several decades, with seminal contributions by Grillches (1971), Rosen (1974), Epple (1987) and Taylor (this Volume). In this chapter, we describe a flexible, but computationally simple approach for estimating structural models of consumer demand using hedonics. The framework is an application of Bajari and Benkard (2005) and Bajari and Kahn (2005), which builds on the classic Rosen hedonic two-step (Rosen 1974; Epple 1987). In a first stage estimation, a flexible home price regression is estimated using local linear regression. Second, using the results from the local linear regression, we recover the implicit price faced by each household in our data set and the marginal utility of each household for every product characteristic. This allows us to generate a nonparametric distribution of random coefficients for the various product characteristics in our data set. Third, we regress the random coefficients on consumer demographics in order to learn about the joint distribution of tastes and demographic characteristics.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsPreview
Unable to display preview. Download preview PDF.
References
Anas A, Arnott R, Small KA (1998) Urban spatial structure. Journal of economic literature 36: 1426-1464
Anderson S, DePalma A, Thisse J (1995) Discrete choice theory of product differentiation. MIT Press, Cambridge, United States
Arnott R (1995) Time for revisionism on rent control? Journal of economic perspectives 9: 99-120
Bajari P, Benkard CL (2005) Demand estimation with heterogeneous consumers and unobserved product characteristics: a hedonic approach. Journal of political economy 113: 1239-1276
Bajari P, Kahn ME (2005) Estimating housing demand with an application to explaining racial segregation in cities. Journal of business and economic statistics 23: 20-33
Bayer P, McMillan R, Ruben K (2004) The causes and consequences of residential segregation: an equilibrium analysis of neighborhood sorting. Working paper, Yale University
Benkard CL, Bajari P (2005) Hedonic price indexes with unobserved product characteristics. Journal of business and economic statistics 23: 61-75
Berry S, Levinsohn J, Pakes A (1995) Automobile prices in market equilibrium. Econometrica 63: 841-890
Brown JN, Rosen HS (1982) On the estimation of structural hedonic price models. Econometrica 50: 765-768
Brueckner JK (2000) Urban sprawl: diagnosis and remedies. International regional science review 23: 160-171
Brueckner JK (2001) Urban sprawl: lessons from urban economics. Brookings-Wharton papers on urban affairs 0: 65-97
Calfee J, Clifford W (1998) The value of automobile travel time: implications for congestion policy. Journal of public economics 69: 83-102
Cheshire P, Sheppard S (1998) Estimating the demand for housing, land and neighbourhood characteristics. Oxford bulletin of economics and statistics 60: 357-382
Cropper M, Gordon P (1991) Wasteful commuting: a re-examination. Journal of urban economics 29: 2-13
Cullen JB, Levitt SD (1999) Crime, urban flight, and the consequences for cities. Review of economics and statistics 81: 159-169
DiPasquale D, Kahn ME (1999) Measuring neighborhood investments: an examination of community choice. Real estate economics 27: 389-424
Dougherty A, Van Order R (1982) Inflation, housing costs, and the consumer price index. American economic review: 154-164
Epple D (1987) Hedonic prices and implicit markets: estimating demand and supply functions for differentiated products. Journal of political economy 95: 59-80
Epple D, Sieg H (1999) Estimating equilibrium models of local jurisdictions. Journal of political economy 107: 645-681
Eckland I, Heckman JJ, Nesheim L (2004) Identification and estimation of hedonic models. Journal of political economy 112: S60-S109
Fan J, Gijbels I (1996) Local polynomial modelling and its applications monographs on statistics and applied probability. (66) CRC Press, London
Giuliano G, Small KA (1991) Subcenters in the Los Angeles region. Regional science and urban economics 21: 163-182
Glaeser EL, Kahn ME (2001) Decentralized employment and the transformation of the american city. Brookings-Wharton papers on urban affairs 0: 1-47
Glaeser EL, Luttmer EFP (2003) The misallocation of housing under rent control. American economic review 93: 1027-1046
Glaeser EL, Kahn ME (2004) Sprawl and Urban Growth. Handbook of Urban Economics Volume IV, edited by Vernon Henderson and J. Thisse. North Holland Press, Amsterdam
Gordon P, Kumar A, Richardson HW (1989) The influence of metropolitan spatial structure on commuting time. Journal of urban economics 26: 138-151
Grilliches Z (1971) editor. Price Indices and Quality Change. Cambridge, Mass.; Harvard University Press
Hamilton BW (1982) Wasteful commuting. Journal of political economy 90: 1035-1051
Margo RA (1992) Explaining the postwar suburbanization of population in the United States: the role of income. Journal of urban economics 31: 301-310
McCulloch RE, Polson NG, Rossi PE (2000) A bayesian analysis of the multinomial probit model with fully identified parameters. Journal of econometrics 99: 173-193
Mieszkowski P, Mills ES (1993) The causes of metropolitan suburbanization. Journal of economic perspectives 7: 135-147
Nechyba T, Walsh RE (2004) Urban sprawl. Journal of economic perspectives 18(4), 177-200.
Nevo A (2001) Measuring market power in the ready-to-eat cereal industry. Econometrica 69: 307-342
Painter G, Gabriel S, Myers D (2001) Race, immigrant status and housing tenure choice. Journal of urban economics 49: 150-167
Palmquist RB (1984) Estimating the demand for the characteristics of housing. Review of economics and statistics 66: 394-404
Peng R, Wheaton WC (1994) Effects of restrictive land supply on housing in Hong Kong: an econometric analysis. Journal of housing research 5: 263-290
Petrin A (2002) Quantifying the benefits of new products: the case of the minivan. Journal of political economy 110: 705-729
Phillips J, Goodstein E (2000) Growth management and housing prices: the case of Portland, Oregon. Contemporary economic policy 18: 334-344
Rauch J (1993) Productivity gains from geographic concentration of human capital: evidence from the cities. Journal of urban economics 34: 380-400
Rosen S (1974) Hedonic prices and implicit markets: product differentiation in pure competition. Journal of political economy 82: 34-55
Sieg H, Smith VK, Banzhaf SH, Walsh RP (2002) Interjurisdictional housing prices in locational equilibrium. Journal of urban economics 52: 131-153
Small KA, Song S (1992) Wasteful commuting: a resolution. Journal of political economy 100: 888-898
Thorsnes P (2000) Internalizing neighborhood externalities. Journal of urban economics 48: 397-418
Waugh FV (1928) Quality factors influencing vegetable prices. Journal of farm economics 10: 185-196
Wheaton WC (1998) Land use and density in cities with congestion. Journal of urban economics 43: 258-272
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2008 Springer Science + Business Media, LLC
About this chapter
Cite this chapter
Bajari, P., Kahn, M.E. (2008). Estimating Hedonic Models of Consumer Demand with an Application to Urban Sprawl. In: Baranzini, A., Ramirez, J., Schaerer, C., Thalmann, P. (eds) Hedonic Methods in Housing Markets. Springer, New York, NY. https://doi.org/10.1007/978-0-387-76815-1_7
Download citation
DOI: https://doi.org/10.1007/978-0-387-76815-1_7
Publisher Name: Springer, New York, NY
Print ISBN: 978-0-387-76814-4
Online ISBN: 978-0-387-76815-1
eBook Packages: Business and EconomicsEconomics and Finance (R0)