Chapter 1: Quasi-experiments and hedonic property value methods
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Households’ valuations of environmental and urban amenities are often imbedded in the prices of transacted property. Property prices are one of the few market-based measures that can be used to reveal the values of many environmental and urban amenities that are not explicitly traded in their own markets. Researchers and policymakers are often interested in quantifying the value of a single amenity such as air quality or school quality. However, extracting the implicit price of one amenity from the overall prices in a property market can be a challenging task. The most commonly used method for estimating an implicit price from property values is called the ‘hedonic method’. This method was first used by Haas (1922), Waugh (1929) and Court (1939), was later popularized by Griliches (1971), and was given a welfare-theoretic interpretation by Rosen (1974). This cross-sectional approach of regressing the attributes of a differentiated product on product prices has been widely applied to real estate markets to understand households’ marginal willingness to pay for changes in environmental and urban attributes.

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