|
The real estate market allocates land and housing. Studying it provides unique insight into how the market and society respond to and value any number of spatial phenomena, both positive and negative. In particular, study of the housing market provides a robust approach for quantifying how environmental amenities and liabilities are valued. The econometric methodology known as "hedonic analysis" is a method in which the sales price of a house is statistically "disaggregated" into a series of "marginal implicit prices" for all the attributes that influence price but which do not get directly priced in the market. Some of these attributes are structural, like the number of bedrooms, or square footage, but others are spatial, such as proximity to parks, level of ambient air pollution, proximity to landfills or other noxious facilities, views, frontage on water, quality of that water, level of vegetation, etc. Hence hedonic analysis has been widely used to help better understand how environmental goods and bads are valued, how those valuations change with context, and, in some cases, to estimate overall welfare gains or losses from projects that change the environment. The problem with hedonics, however, is that there are many assumptions to be able to use this method, and so it must be used with caution and interpreted carefully, particularly for policy applications. This session outlines the basics of this approach, gives several examples of how it has been used, and discusses some of its limitations. |
From
Yardstick to Gyroscope -