Barbados is one of the most popular destinations in the Caribbean. Historically most visitors were accommodated in hotels. In the past decade, however, the proportion of luxury rooms has declined in proportion to the expansion in the second home rental market. The behavior of rental prices for villas on the island, nevertheless, is not well understood. Using observations on 322 villas and cottages, this article estimates a hedonic regression of the prices for these properties. Prices are modeled as functions of structural, neighborhood, and environmental factors. The findings from the article suggest that the rental prices for villas and cottages on the island are largely because of unobserved neighborhood characteristics and structural features related to the property. The study contributes to the literature by providing an assessment of the villa market in a largely tourism-dependent economy and also proposes an approach for measuring unobserved neighborhood characteristics.
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