Replication data for: A Rational Expectations Approach to Hedonic Price Regressions with Time-Varying Unobserved Product Attributes: The Price of Pollution

Principal Investigator(s): View help for Principal Investigator(s) Patrick Bajari; Jane Cooley Fruehwirth; Kyoo il Kim; Christopher Timmins

Version: View help for Version V1

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Project Citation:

Bajari, Patrick, Fruehwirth, Jane Cooley, Kim, Kyoo il, and Timmins, Christopher. Replication data for: A Rational Expectations Approach to Hedonic Price Regressions with Time-Varying Unobserved Product Attributes: The Price of Pollution. Nashville, TN: American Economic Association [publisher], 2012. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-11. https://doi.org/10.3886/E112541V1

Project Description

Summary: We propose a new strategy for a pervasive problem in the hedonics literature: recovering hedonic prices in the presence of time-varying correlated unobservables. Our approach relies on an assumption about home buyer rationality, under which prior sales prices can be used to control for time-varying unobservable attributes of the house or neighborhood. Using housing transactions data from California's Bay Area between 1990 and 2006, we apply our estimator to recover marginal willingness to pay for reductions in three of the EPA's "criteria" air pollutants. Our findings suggest that ignoring bias from time-varying correlated unobservables considerably understates the benefits of a pollution reduction policy. (JEL D12, D84, Q53, Q58, R21)

Scope of Project

JEL Classification:
      D12 Consumer Economics: Empirical Analysis
      D84 Expectations; Speculations
      Q53 Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
      Q58 Environmental Economics: Government Policy
      R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand

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V1 [2019-10-11]

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