Does the Measurement of Property and Structural Characteristics Affect Estimated Implicit Prices for Environmental Amenities in a Hedonic Model?

Hedonic models are commonly used to estimate marginal willingness to pay for environmental amenities. These studies utilize variables that are assumed to be measured without error (such as the square footage of the lot or the number of bedrooms) and proxy variables (such as neighborhood or school quality). Lot and structural characteristics may in fact be measured with error. Potential sources of error include inaccurate measures and inconsistent updating. We investigate the effect of using tax-assessor data versus survey data from purchasers to estimate the implicit price of an environmental amenity, lake-water clarity. Convergent validity of the implicit price for water clarity is established if the town and survey data provide statistically indistinguishable estimates of implicit prices for this amenity. Overall, the town-office and survey data on property characteristics were not statistically different in three of the four market groupings examined, which suggests that the traditional municipal sources of these data may not contain substantial measurement error. Furthermore, convergent validity is satisfied in all four market areas. However, differences in computed implicit prices of clarity in two of the market areas are large enough that policy decisions for environmental quality could be affected by the source of the lot and structural data.