Partial identification of amenity demand functions

This paper presents a new hedonic framework for reduced form estimation of the demand for spatially delineated nonmarket amenities. We begin from a conventional model of market equilibrium where an amenity is conveyed to homeowners by virtue of their residential location choices. Different housing markets may have different hedonic price functions due to variation across markets in the joint distribution of preferences, income, regulations, and technology. In this setting, taste-based sorting within and across markets confounds point identification of reduced form descriptions for amenity demand curves. However, we demonstrate that basic knowledge of the sorting process is sufficient to construct instruments that identify bounds on demand curves. Bounds on demand curves can be translated into ranges of welfare measures for non-marginal changes in amenities. We find these ranges to be potentially informative in a demonstrative application to evaluating the benefits of improved lake water clarity in the Northeast.