NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Jane Cooley Fruehwirth

Department of Economics
Gardner Hall
University of North Carolina
Chapel Hill, NC 27599
Tel: 919-966-4886

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NBER Working Papers and Publications

February 2010A Theory-Based Approach to Hedonic Price Regressions with Time-Varying Unobserved Product Attributes: The Price of Pollution
with Patrick Bajari, Kyoo il Kim, Christopher Timmins: w15724
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.

Published: A Theory-Based Approach to Hedonic Price Regression s with Time-Varying Unobserved Product Attributes: The Price of Polluti on (with Jane Cooley, Kyoo- Il Kim, and Christopher Timmins), American Economic Review , 102(5), 1898- 2926, 2012.

 
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