NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Hedonic Prices and Implicit Markets: Estimating Marginal Willingness to Pay for Differentiated Products Without Instrumental Variables

Kelly C. Bishop, Christopher Timmins

NBER Working Paper No. 17611
Issued in November 2011
NBER Program(s):   EEE   PE

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.

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Document Object Identifier (DOI): 10.3386/w17611

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