Environmental Valuation & Cost-Benefit News
Errors in variables and spatial effects in hedonic house price models of ambient air quality
03/15/08
11:33:15 am, by damageva 
, 241 words, 179 views 
Categories: Air, Real Estate Construction Housing, Academic Study/Journal Article, California, Hedonic Analysis, Environmental Economics / Ecological Economics, Costs and Benefits
Errors in variables and spatial effects in hedonic house price models of ambient air quality
Abstract: In the valuation of the effect of improved air quality through the estimation of hedonic models of house prices, the potential “errors in variables” aspect of the interpolated air pollution measures is often ignored. In this paper, Luc Anselin and Nancy Lozano-Gracia assess the extent to which this may affect the resulting empirical estimates for marginal willingness to pay (MWTP), using an extensive sample of over 100,000 individual house sales for 1999 in the South Coast Air Quality Management District of Southern California. The authors take an explicit spatial econometric perspective and account for spatial dependence and endogeneity using recently developed Spatial 2SLS estimation methods. They also account for both spatial autocorrelation and heteroskedasticity in the error terms, using the Kelejian–Prucha HAC estimator. Our results are consistent across different spatial weights matrices and different kernel functions and suggest that the bias from ignoring the endogeneity in interpolated values may be substantial.
Keywords: Spatial econometrics, Hedonic models, HAC estimation, Endogeneity, Air quality, valuation, Real estate markets
by Luc Anselin 1 and Nancy Lozano-Gracia 1 and 2
1. School of Geographical Sciences, Arizona State University, Tempe, AZ 85287-0104, USA; Email: luc.anselin@asu.edu
2. Spatial Analysis Laboratory (SAL) and Department of Agricultural and Consumer Economics, University of Illinois, Urbana-Champaign, Urbana, IL 61801, USA; Email: lozano@uiuc.edu
Empirical Economics via Physica Verlag, An Imprint of Springer-Verlag GmbH www.SpringerLink.com
Volume 34, Number 1; February, 2008; Pages 5-34
DOI: 10.1007/s00181-007-0152-3
http://www.springerlink.com/content/5289x15u2263102u/
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