The Economic Valuation of the Environment and Public Policy
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The Economic Valuation of the Environment and Public Policy

A Hedonic Approach

Noboru Hidano

The importance of the hedonic valuation approach in public policy evaluation and environmental value estimation is now widely accepted. This book is especially designed to illustrate the basic assumptions of the hedonic approach and highlight the strengths and weaknesses associated with it. Combining rigorous theoretical analysis, detailed empirical studies and an extensive history of hedonic valuation, the book is both a good introductory text to the field and a precise yet comprehensive aid for professionals and practitioners alike.
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Chapter 7: Estimation of Hedonic Price Function

A Hedonic Approach

Noboru Hidano


INTRODUCTION We have discussed the importance of hedonic price functions in the previous chapters since we need an accurate hedonic price function in order to determine sound environmental and public project benefits based upon the limited nature of the discrepancy of the hedonic measures from the true values. The next stage is to concentrate on finding a method of estimating good hedonic price functions. But as we discussed in Chapter 2, the estimation of the functions is heavily dependent on the data. Thus the problem of the estimation can be reduced to the problem of sound data availability. In this chapter we shall take the property market as an example, although the discussions are applicable to other commodities as well. MARKET SEGMENTATION AND SAMPLE SIZE FOR HEDONIC ANALYSIS The first question to ask in a practical hedonic analysis is ‘what market segment should we analyse?’ Clearly it depends on what we want to gain from the analysis. As far as the theory is concerned, the capitalization theorem in the previous chapters suggests that we should obtain the data from a market in which samples can be chosen from an area at the level of an amenity (or the level of public services), without a project (or a policy), and from an area at the level which would be achieved with the project that we have to evaluate. We must take into account the different types of groups of consumers of an amenity, that is, those with di...

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