Handbook of Environmental and Resource Economics
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Handbook of Environmental and Resource Economics

Edited by Jeroen C.J.M. van den Bergh

This major reference book comprises specially commissioned surveys in environmental and resource economics written by an international team of experts. Authoritative yet accessible, each entry provides a state-of-the-art summary of key areas that will be invaluable to researchers, practitioners and advanced students.
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Chapter 53: Hedonic Models

R.B. Palmquist


Raymond B. Palmquist 1. Introduction Hedonic models were developed to deal with markets for differentiated products. A differentiated product is one where there can be significant differences between various units of the product yet consumers consider them all to be members of the same general product class. The market for such a product can be perfectly competitive, and yet the prices for the models of the differentiated product will differ depending on the specific characteristics or attributes that the model contains. In its simplest form the hedonic model seeks to explain the price for which a model sells by the quantities of the characteristics it contains. For example, some of the earliest applications (Court, 1939; Griliches, 1971) sought to explain the price of automobiles by characteristics such as horsepower, weight and so on, and the techniques have been useful in developing quality-adjusted price indexes. In environmental economics hedonic models have been used extensively in efforts to estimate willingness to pay for environmental improvements. Most environmental goods are not traded on markets, so their valuation is typically done by stated preference methods such as contingent valuation, or by revealed preference methods such as travel cost models. Hedonic methods are revealed preference methods, and they represent one of the few instances where environmental quality is traded in actual markets. This is so because environmental quality is one of the characteristics of some differentiated products. Housing markets are the most frequently used example of this. In buying or renting a house, the consumer...

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