TY - JOUR
AU - Banzhaf, H. Spencer
TI - Panel Data Hedonics: Rosen's First Stage and Difference-in-Differences as "Sufficient Statistics"
JF - National Bureau of Economic Research Working Paper Series
VL - No. 21485
PY - 2015
Y2 - August 2015
DO - 10.3386/w21485
UR - http://www.nber.org/papers/w21485
L1 - http://www.nber.org/papers/w21485.pdf
N1 - Author contact info:
H. Spencer Banzhaf
Department of Economics
Andrew Young School of Policy Studies
Georgia State University
P.O. Box 3992
Atlanta, GA 30302
Tel: 404/413-0252
Fax: 404/413-0248
E-Mail: hsbanzhaf@gsu.edu
AB - For decades, economists have used the hedonic model to estimate demands for the implicit characteristics of differentiated commodities. The traditional cross-sectional approach can recover marginal willingness to pay for characteristics, but has faltered over a difficult endogeneity problem for non-marginal welfare measures. I show that when marginal prices can be reliably estimated, and when panel data on household demands is available, one can construct a second-order approximation to non-marginal welfare measures using only the first-stage marginal prices. Under a single-crossing restriction, the approach remains valid for repeated cross sections of product prices.
More recently, economists have questioned the assumptions under which one can identify these cross-sectional hedonic price functions, raising the possibility of unobservables that are correlated with the characteristic of interest. To overcome this problem, they have introduced difference-in-differences econometric models to identify capitalization effects. Unfortunately, the interpretation of these effects has not been clearly perceived in the literature. I additionally show these capitalization effects are the "average direct unmediated effect" on prices of a change in characteristics, which can be interpreted as a movement along the ex post hedonic price func-tion. This effect is a lower bound on Hicksian equivalent surplus.
ER -