Environmental Economics

Inferring Willingness to Pay for Housing Amenities from Residential Property Values

The standard hedonic model of consumers' choices in housing markets, which forms the basis of much environmental benefits analysis, fails to take account of three important characteristics of the bidding process through which houses are sold. First, the prices of houses are established through sequential bidding, so sellers do not necessarily accept the highest bids that might be made for their houses. Second, ignorance of the market may lead potential buyers to make bids that are either higher or lower than the ones they would make if they had complete information. Finally, the distribution of bids for a house is truncated at the seller's asking price. These characteristics of housing markets imply that buyers cannot choose houses so as to maximize a deterministic utility function subject to a deterministic budget constraint as required by the standard model. This report describes a new model of consumers' choices in housing markets that incorporates the foregoing market characteristics. The new model gives estimates of buyers' willingness to pay for housing amenities that are significantly different from the estimates produced by the standard model.

  • Keywords

    Subject:
    1. Benefits Analysis
    1. Benefits Analysis - Valuation
    1. Benefits Analysis - Valuation - Revealed Preference
    1. Benefits Analysis - Valuation - Revealed Preference - Property Value
    Environmental Media:
    a. Air
    a. Air - Tropospheric
    Authors:
    Horowitz, Joel L.
    EPA Project Officer/ Manager:
    Luken, Ralph
    Geographic Area:
    Baltimore
    Study Purpose:
    Empirical Application, Methodology Development & Evaluation
    Inventory Record #: EE-0005
  • Participating Organizations

    Research Organization:

    Iowa, University ofAddress:
    City: Iowa City State: IA ZIP: 52242
    Phone: Fax:
    E-mail:
    Funding Organization:
    Environmental Protection AgencyAddress:
    City: Washington State: DC ZIP: 20460
    Phone: Fax:
    E-mail:
  • Report Details
    Type:
    Final
    Date:
    09/01/1985
    Number of Pages:
    72
    Comment:
    EPA #:
    Grant/Contract #:
    EPA-600/7-85-034
    CR-810753-01
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