Estimating the marginal willingness to pay function without instrumental variables

Kelly Bishop, Christopher Timmins

    Research output: Contribution to journalArticle

    Abstract

    The hedonic model of Rosen (1974) has become a workhorse for valuing the characteristics of differentiated products despite a number of well-documented econometric problems, including a source of endogeneity that has proven difficult to overcome. Here we outline a simple, likelihood-based estimation approach for recovering the marginal willingness-to-pay function that avoids this endogeneity problem. Using this framework, we find that marginal willingness-to-pay to avoid violent crime increases by sixteen cents with each additional incident per 100,000 residents. Accounting for the slope of the marginal willingness-to-pay function has significant impacts on welfare analyses.

    Original languageEnglish (US)
    Pages (from-to)66-83
    Number of pages18
    JournalJournal of Urban Economics
    Volume109
    DOIs
    StatePublished - Jan 1 2019

    Fingerprint

    willingness to pay
    violent crime
    crime
    econometrics
    incident
    welfare
    resident
    Willingness-to-pay
    Instrumental variables
    Endogeneity

    Keywords

    • Crime
    • Hedonic demand
    • Willingness to pay

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Urban Studies

    Cite this

    Estimating the marginal willingness to pay function without instrumental variables. / Bishop, Kelly; Timmins, Christopher.

    In: Journal of Urban Economics, Vol. 109, 01.01.2019, p. 66-83.

    Research output: Contribution to journalArticle

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