Prices,product differentiation and quality measurement: A comparison between hedonic and matched model methods

The paper provides an analysis of the problems of construction of quality-adjusted price indexes within the framework of the theory of product differentiation. In the general case of price-making behaviour on the part of firms, hedonic regressions are defined on the basis of reduced forms of the equation relating equilibrium prices to product characteristics. The paper considers the reduced form given by the marginal cost function and shows that the Laspeyres hedonic price index provides a lower bound to the quality-adjusted rate of price change while the Paasche hedonic price index provides an upper bound to the quality-adjusted rate of price change. The properties of hedonic price indexes are compared with those of matched model indexes. The theory is applied to the study of personal computer prices in Italy during the 1995–2000 period.     

Hedonic prices and cost/benefit analysis

Hedonic prices have been used to evaluate the willingness to pay for attributes. We reformulate the notion of hedonic price from a composite price on housing to a unit price on traded quantities, in conformity with long run competitive equilibrium theory. This formulation was suggested (but not developed) by Rosen (J. Polit. Econ.82, No. 1 (1974), 34–35). By first characterizing an efficient allocation of consumers to space, we show that hedonic unit prices can be understood as a bid-rent function which supports the efficient allocation. This is despite the fact that the lots over which consumers bid are themselves endogenous. We show that unit hedonic prices reveal preferences in a manner different from composite hedonic expenditures.     

Risk and Information: a Hedonic Price Study in the New Zealand Housing Market*

This paper employs the hedonic price approach developed by Rosen (1974) and recently extended to study the effects of potential natural hazards on consumer behaviour. Hedonic prices are used to estimate home buyers' willingness to pay to avoid a high-pressure gas pipeline installed in a residential area Studies of risk and information (e.g. Brookshire et al., 1985, Smith and Johnson, 1988) suggest that the subjective probability of a hazard occurring differs from the objective probability. If we allow for this, and relax the assumption of full information on the part of home buyers, our theoretical analysis indicates that a single hedonic price is not sufficient because hedonic prices are likely to change with a change in information. Our empirical analysis of cross-sectional data across time is in accord with the theoretical model, although not highly significant     

Art in Africa: Hedonic price analysis of the South African fine art auction market, 2009–2014

Real asset markets are characterized by illiquidity and heterogeneous assets, presenting challenges to price estimators. Use of a new dataset of 7,553 auction fine art lots brought to market in South Africa, for 2009–14, allows us to examine the full sales hedonic price estimator over a wide set of characteristics. Results validate full sale hedonic pricing: Identities of artists, medium and genre, dating characteristics, and physical characteristics of artwork are significant. External validity of hedonic pricing is supported by out-of-sample price prediction for 40 individual artists. Auction house catalogue presentation of art work also proves correlated with realized auction prices. Art as an asset finds support: art prices move countercyclically with GDP and domestic equity markets, pro-cyclically with off-shore equity markets, implying a risk diversification role. JEL Codes: D1, L8. Keywords: hedonic price equation, art market, South Africa Word Count: 9467 (including all Tables, Figures, References).     

Technical change, prices and communications technology: Insights from the Local Area Networking industry

We use hedonic regressions to analyse price changes in two categories of Local Area Networking (LAN) equipment: hubs and switches. Constant quality price indexes are constructed from the regressions and contrasted with available indexes constructed for the same type of equipment. We find that prices fell at an average annual rate between 22% and 33% during the 1990s. The results suggest that beside falling prices of inputs (i.e. semiconductors), technical change in the LAN equipment may be responsible for the decrease in the prices of communication equipment during the 1990s.     

GIS-Based Hedonic Pricing of Landscape

Hedonic prices of landscape are estimated in the urban fringe of Dijon (France). Viewshed and its content as perceived at ground level are analyzed from satellite images supplemented by a digital elevation model. Landscape attributes are then fed into econometric models (based on 2,667 house sales) that allows for endogeneity, multicollinearity, and spatial correlations. Results show that when in the line of sight, trees and farmland in the immediate vicinity of houses command positive prices and roads negative prices; if out of sight, their prices are markedly lower or insignificant: the view itself matters. The layout of features in fragmented landscapes commands positive hedonic prices. Landscapes and features in sight but more than 100–300~m away all have insignificant prices.     

Using stochastic frontier models to mitigate omitted variable bias in hedonic pricing models: A case study for air quality in Bogotá, Colombia

Hedonic pricing models use property value differentials to value changes in environmental quality. If unmeasured quality attributes of residential properties are correlated with an environmental quality measure of interest, conventional methods for estimating implicit prices will be biased. Because many unmeasured quality measures tend to be asymmetrically distributed across properties, it may be possible to mitigate this bias by estimating a heteroskedastic frontier regression model. This approach is demonstrated for a hedonic price function that values air quality in Bogotá, Colombia.     

How Fast are Semiconductor Prices Falling?

The Producer Price Index (PPI) for the U.S. suggests that semiconductor prices have barely been falling in recent years, a dramatic contrast to the rapid declines reported from the mid‐1980s to the early 2000s. This slowdown in the rate of decline is puzzling in light of evidence that the performance of microprocessor units (MPUs) has continued to improve at a rapid pace. Over the course of the 2000s, the MPU prices posted by Intel, the dominant producer of MPUs, became much stickier over the chips' life cycle. As a result of this change, we argue that the matched‐model methodology used in the PPI for MPUs likely started to be biased after the early 2000s and that hedonic indexes can provide a more accurate measure of price change since then. MPU prices fell rapidly through 2004 on every price measure we present, with the PPI declining at an even quicker pace than the hedonic indexes. However, from 2004 to 2009, our preferred hedonic index fell faster than the PPI, and from 2009 to 2013 the gap widened further, with our preferred index falling at an average annual rate of 42 percent, while the PPI declined at only a 6 percent rate. Given that MPUs currently represent about half of U.S. shipments of semiconductors, this difference has important implications for gauging the rate of innovation in the semiconductor sector.     

An Application of Hedonic Regression to Evaluate Prices of Polish Paintings

As the global financial crisis hit the world-wide stock markets, investors looked for alternative investments to diversify their portfolios. One of the more attractive alternate investment opportunities has been investment in art. However, in order to consider artworks as investment assets, the performance of the artworks must be evaluated in order to compare it to other financial instruments. Therefore, hedonic art price indexes are constructed for different art markets. The art market in Poland is characterized by a limited scale since it has only been developing since 1989. The aim of our research is evaluation of the hedonic art price indexes for Polish paintings. Hedonic regression models are estimated using data from auctions of paintings that took place in Poland in the years 2007–2010.     

ASSESSING THE QUALITY ERROR IN OUTPUT MEASURES: THE CASE OF REFRIGERATORS*

This paper computes new indexes of output for refrigerators, using hedonic methods to adjust for quality change. The hedonic technique is applied in a new way (it is used to make quality adjustments to prices before they are used in the index), and the results are compared with those from methods used in previous hedonic investigations. There are three major findings. (1) Overall (1960–1972), our hedonic deflated output series rise more rapidly than conventional measures, because the price indexes used for deflation rise more slowly. (2) The output measures fluctuate more than do output measures produced by conventional methods, because adding hedonic quality adjustments to WPI indexes moves them up in some years and down in others, and the resulting adjustments to the output series were positively correlated with changes in output. (3) Applying methods used in previous studies produces larger adjustments to the published indexes, suggesting that some of the differences noted in previous studies between hedonic indexes and official published indexes are related to computational methods, not to quality adjustment.     

Alternative Land-Price Indexes for Commercial Properties in Tokyo

The System of National Accounts (SNA) requires separate estimates for the land and structure components of a commercial property. Using transactions data for the sales of office buildings in Tokyo, a hedonic regression model (the “builder’s model”) was estimated and this model generated an overall property price index as well as subindexes for the land and structure components of the office buildings. The builder’s model was also estimated using appraisal data on office building real estate investment trusts (REITs) for Tokyo. These hedonic regression models also generated estimates for net depreciation rates, which can be compared. Finally, the Japanese government constructs annual official land prices for commercial properties based on appraised values. The paper compares these official land prices with the land prices generated by the hedonic regression models based on transactions data and on REIT data. The results reveal that commercial property indexes based on appraisal and assessment prices lag behind the indexes based on transaction prices.     

Financial Returns and Price Determinants in the Australian Art Market, 1973–2003*

In this study, 37 605 paintings by 60 well-known Australian artists sold at auction over the period 1973–2003 are used to construct a hedonic price index. The attributes included in the hedonic regression model include the name and living status of the artist, the size and medium of the painting and the auction house and year in which the painting was sold. The resulting index indicates that returns on Australian fine-art averaged 7 per cent over the period with a standard deviation of 16 per cent. The hedonic regression model also captures the willingness to pay for perceived attributes in the artwork, and this shows that works by McCubbin, Gascoigne, Thomas and Preston and other artists deceased at the time of auction, works executed in oils or acrylic, and those auctioned by Sotheby's or Christie's are associated with higher prices.     

Innovation and price: the case of digital cameras

This study examines a hedonic regression model of digital camera prices using data collected from an internet price comparison service. We find that a small number of product characteristics explains most of the variation in camera prices. In addition, the model demonstrates substantial downward pressure on camera prices during the time period considered. We also examine technological innovation shocks to determine their impact on product prices. We find that the corresponding price reaction exhibits gradual adjustment over time, providing evidence of some degree of anticipation of the innovation, as well as a post-innovation price shock. This study also demonstrates the power of web-based shopping services as a new and novel source of data for econometric analysis.     

Environmental amenities and agricultural land values: a hedonic model using geographic information systems data

Remote agricultural lands, which include wildlife habitat, angling opportunities and scenic vistas, command higher prices per hectare in Wyoming than those whose landscape is dominated by agricultural production. Geographic information systems (GIS) data are used to measure recreational and scenic amenities associated with rural land. A hedonic price model is specified with GIS measures. It is used to estimate the impact of amenity and agricultural production land characteristics on price per acre for a sample of Wyoming agricultural parcels. Results indicate that the specification performed well across several functional forms. The sampled land prices are explained by the level of both environmental amenities as well as production attributes. Statistically significant amenity variables included scenic view, elk habitat, sport fishery productivity and distance to town. This analysis permits a better estimation of environmental amenity values from hedonic techniques. Improved estimation of amenity values is vital for policies aimed at open space preservation, using agricultural conservation easements and land use conflict resolution.     

Chained,exact and superlative hedonic price changes: estimates from microdata

Scanner data are used to calculate chained, exact (and superlative) hedonic price indexes for television sets. The data source is available for a wide range of goods, the application providing an example of how this method can be more widely applied. The indexes correspond to constant utility, hedonic cost-of-living indexes. The approach improves on the existing direct method, which takes its estimates directly from the coefficients on time dummies in a hedonic regression. It also improves on the matched model method used by statistical agencies. The differences between actual price changes and exact hedonic quality-adjusted price changes are found to be substantial. Base-period and current-period weighted exact hedonic indexes are similar, thus providing good approximations to a superlative index. Estimates from the direct, dummy variable approach were compared to the superlative indexes. The disparities between the results argue for caution in the use of the direct, dummy variable approach to estimating quality-adjusted price changes.     

特征价格法在房地产价格指数中的应用

特征价格法（Hedonic method）是将房地产价格变动中的质量特征因素进行分解，以显现出各项特征的隐含价格。并从价格的总变动中逐项剔除质量特征变动的影响，达到仅仅反映纯价格变动的目的。本文通过双重Imputation过程估计缺失价格和剔除异常值的影响，解决了可比性问题，并增强了Hedonic模型的稳定性。     

A price index for Canada, 1688 to 1850

This paper presents the first price index for any region of Canada that spans from the colonial era to the mid‐19th century. I constructed it using prices from the account books of religious congregations with estates throughout modern‐day Quebec. It represents a substantial improvement over previous indexes thanks to the consistent price quotations in the source material, the high frequency of observations for many goods, the vast number of goods and the inclusion of numerous non‐agricultural and non‐food goods. Its price trends differ mildly from those of existing but less‐comprehensive price indexes. I link this new index with post‐1850 indexes to create a 328‐year price index for Canada.     

A LANDFILL CLOSURE AND HOUSING VALUES

The United States disposes roughly 60% of the municipal solid waste it generates each year in solid waste disposal facilities, commonly known as landfills. Hedonic pricing studies have estimated the external costs of landfills on neighboring housing markets, but the literature is silent on what happens to property values after the landfill closes. Original housing price data collected both before and after a landfill closure are used to estimate how a landfill closure affects neighboring property values. Results of both a hedonic pricing model and a repeat-sales estimator are used in the analysis. ( JEL H42, H72, Q51, Q53, R21)     

The product life cycle and sample representativity bias in price indexes

Official price indexes are usually calculated using matched samples of products. If products exhibit systematic price trends at different points in their life cycle then matched sample methods may introduce bias if the life cycle movement in the sample does not adequately reflect that in the population. This article explores the extent of these life cycle pricing effects and then examines the bias it can introduce in measured inflation. A large US supermarket scanner data set for six cities and six products over 12 years is used. Using hedonic methods we find that the life cycle component of price change is important across a range of products and cities. To explore the bias introduced by these movements, we use simulations that construct indexes with different sample update frequency. For indexes that are never completely resampled, we find an annual absolute bias of 0.88 and 0.59 percentage points depending upon whether we use the actual prices or prices imputed from our hedonic model. This compares with absolute biases of 0.34 and 0.10 percentage points for the corresponding cases for samples, which are re-selected annually. Thus our results provide strong support for more frequently updating index samples.     

Flooding risk and housing values: An economic assessment of environmental hazard

Climate change, the ‘boom and bust’ cycles of rivers, and altered water resource management practice have caused significant changes in the spatial distribution of the risk of flooding. Hedonic pricing studies, predominantly for the US, have assessed the spatial incidence of risk and the associated implicit price of flood risk. Using these implicit price estimates and their associated standard errors, we perform a meta-analysis and find that an increase in the probability of flood risk of 0.01 in a year is associated to a difference in transaction price of an otherwise similar house of - 0.6%. The actual occurrence of a flooding event or increased stringency in disclosure rules causes ex-ante prices to differ from ex-post prices, but these effects are small. The marginal willingness to pay for reduced risk exposure has increased over time, and it is slightly lower for areas with a higher per capita income. We show that obfuscating amenity effects and risk exposure associated with proximity to water causes systematic bias in the implicit price of flood risk.