TY  - JOUR
AU  - Bajari,Patrick
AU  - Cooley,Jane
AU  - Kim,Kyoo il
AU  - Timmins,Christopher
TI  - A Theory-Based Approach to Hedonic Price Regressions with Time-Varying Unobserved Product Attributes: The Price of Pollution
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15724
PY  - 2010
Y2  - February 2010
UR  - http://www.nber.org/papers/w15724
L1  - http://www.nber.org/papers/w15724.pdf
N1  - Author contact info:
Patrick Bajari
University of Washington
331 Savery Hall
UW Economics Box 353330
Seattle, Washington 98195-3330
E-Mail: Bajari@uw.edu

Jane Cooley
University of Wisconsin
1180 Observatory Drive
Madison, WI 53706
E-Mail: jcooley@ssc.wisc.edu

Kyoo il Kim
Department of Economics
University of Minnesota
4-129 Hanson Hall
1925 4th Street South
Minneapolis, MN 55455
Tel: 612-625-6793
E-Mail: kyookim@umn.edu

Christopher Timmins
Department of Economics
Duke University
209 Social Sciences Building
P.O. Box 90097
Durham, NC 27708-0097
Tel: 919/660-1809
Fax: 919/684-8974
E-Mail: christopher.timmins@duke.edu
AB  - 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.
ER  -