Estimating the Marginal Willingness to Pay Function Without Instrumental Variables

Bishop, Kelly C.; Timmins, Christopher

doi:10.2139/ssrn.2748657

Cited by 12 publications

(34 citation statements)

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“…This has been the traditional hedonic approach for decades and continues to be invoked in many models (e.g. Bishop and Timmins 2015, Ekeland, Heckman, and Nesheim 2004, Heckman, Matzkin, and Nesheim 2005, 2010a. In this setting, I…”

Section: Using Only the First Stage To Evaluate Non-marginal Changes mentioning

confidence: 99%

“…tastes) will systematically vary both with levels of amenities and their marginal prices. This correlation gives rise to the well-known endogeneity problem for Rosen's "second stage" (Bartik 1987, Bishop and Timmins 2015, Epple 1987, Heckman, Matzkin, and Nesheim 2010a.…”

Section: Using Only the First Stage To Evaluate Non-marginal Changes mentioning

confidence: 99%

“…Although they have proposed a variety of approaches to the problem, all have the common element of explicitly modeling heterogeneity in demand together with the equilibrium sorting process, whether in the continuous world of the hedonic model (e.g. Bajari and Benkard 2005, Bishop and Timmins 2015, Heckman, Matzkin, and Nesheim 2005 or the discretecontinuous world of "sorting models" (e.g. Bayer, Ferreira, and McMillan 2007, Ferreyra 2007, Kuminoff 2012, Sieg et al 2004; see Kuminoff, Smith, and Timmins 2013 for a review).…”

Section: Using Only the First Stage To Evaluate Non-marginal Changes mentioning

confidence: 99%

“…Sieg et al 2004); similarly, willingness-to-pay (WTP) functions may be assumed to have errors follow-ing some known distribution (e.g. normal in Bishop and Timmins 2015). Alternatively, one can relax these distributional assumptions but forego point identification of the underlying parameters and be content with set identification (Kuminoff 2012).…”

Section: Using Only the First Stage To Evaluate Non-marginal Changes mentioning

confidence: 99%

“…In the hedonic model, Ekeland, Heckman, and Nesheim (2004) consider the case of additive hedonic models, noting that nonlinearities in the equilibrium price function justify using nonlinear functions of observed demand shifters as instruments for the observed quantities demanded. Nesheim (2005, 2010a) and Bishop and Timmins (2015) discuss strategies for imposing functional form restrictions that allow one to map quantities of characteristics demanded into demands. Other approaches to the problem go straight to modeling the deep parameters using structural models (e.g.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Panel Data Hedonics: Rosen's First Stage as a "Sufficient Statistic"

Banzhaf¹

2015

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For decades, economists have used the hedonic model to estimate demands for the implicit characteristics of differentiated commodities. The traditional cross-sectional approach can recover marginal willingness to pay for characteristics, but has faltered over a difficult endogeneity problem for non-marginal welfare measures. I show that when marginal prices can be reliably estimated, and when panel data on household demands is available, one can construct a second-order approximation to non-marginal welfare measures using only the first-stage marginal prices. Under a single-crossing restriction, the approach remains valid for repeated cross sections of product prices.More recently, economists have questioned the assumptions under which one can identify these cross-sectional hedonic price functions, raising the possibility of unobservables that are correlated with the characteristic of interest. To overcome this problem, they have introduced difference-in-differences econometric models to identify capitalization effects. Unfortunately, the interpretation of these effects has not been clearly perceived in the literature. I additionally show these capitalization effects are the "average direct unmediated effect" on prices of a change in characteristics, which can be interpreted as a movement along the ex post hedonic price func-tion. This effect is a lower bound on Hicksian equivalent surplus.

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Section: Using Only the First Stage To Evaluate Non-marginal Changes mentioning

confidence: 99%