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

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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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