Hedonic Price Analysis and Selectivity Bias

Hedonic valuation of quality attributes can be misleading when theassumption that these attributes are exogenous to sample selection isviolated. This paper considers the simultaneity between hedonic valuationand sample selection in the context of a model of producer behavior andinvestigates empirically the case where land is demanded for use as an inputeither in agricultural production or in touristic development. The empiricalanalysis suggests that failing to correct for sample selection results in abiased valuation of the effect of water salinity on agricultural land.     

Social Preferences and Competition

There is a general presumption that social preferences can be ignored if markets are competitive. Market experiments (Smith 1962) and recent theoretical results ( Dufwenberg et al. Forthcoming ) suggest that competition forces people to behave as if they were purely self‐interested. We qualify this view. Social preferences tend to be irrelevant if two conditions are met: separability of preferences and completeness of contracts. These conditions are often plausible, but they fail to hold when uncertainty is important (financial markets) or when incomplete contracts are traded (labor markets). Social preferences can explain many of the anomalies frequently observed on these markets.     

Books Reviewed

Books reviewed:
Stroup, Richard L., and Roger E. Meiners, eds. Cutting Red Tape: Toxic Pollutants, Environmental Regulation and the Law
Bardhan, Pranab, and Christopher Udry, Development Microeconomics
Véron, René, Real Markets and Environmental Change in Kerala, India: A New Understanding of the Impact of Crop Markets on Sustainable Development
Wettestad, Jørgen, Designing Effective Environmental Regimes: The Key Conditions
Starrs, Paul F., Let the Cowboy Ride     

Homotheticity and Non-Radial Changes

Färe and Mitchell(1992) have shown that cost functions for a multi-output firmobey a particular output-scaling law if and only if the underlyingproduction technology is ray-homothetic. Multi-output firms,however, frequently change their output mix in addition to theirscale. Therefore, it is important to identify technologies thatpossess relatively tractable analytical characteristics whensubjected to non-radial changes in the output vector. This paperconsiders additive and other, more general, changes in the outputvector. One result shows that the cost function obeys an ``output-translationlaw' if and only if the input correspondence is input homothetic,thus suggesting that ``input homotheticity' is more than justan ``input-scaling' property.