Hedonic Regressions Price indices, quality control, and valuation of public services.

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Presentation transcript:

Hedonic Regressions Price indices, quality control, and valuation of public services

Some Theory Multiple characteristics of goods –Ala carte or combination platter –From Industrial Organization, think of bundling Contribution/value of specific attributes –Value of crash safety in car price –value of school quality in home price Equilibrium of Supply and Demand

Early Hedonics Frederick Waugh - Quality Factors Influencing Vegetable Prices (1927) Andrew Court - Hedonic Price Indexes with Automotive Examples (1939) Gregory Chow - Technological Change and the Demand for Computers (1967)

Formulate a Model What determines the Price of Asparagus? –Anything that shifts supply or demand Characteristics of the vegetable Time of year “Good” year - weather, crop disease, insect infestation Tastes and preferences Income Population

Formulate a Model What relationships do you expect? –Does price rise or fall with “Green”? –Does it rise or fall with “Nostalks”? –Does it rise or fall with “Disperse”? Are marginal effects of characteristics constant? Do marginal effects of some characteristics depend on other characteristics?

Waugh’s Data ugh.txt Open Excel or Quattro Copy the data from the web browser Paste it into Excel and parse it into separate columns Save as a text file (tab delimited) Read into Stata using the insheet command

Waugh’s Data Determined price, size and color variation, and the number of stalks in bundles of asparagus Price is price of a bundle relative to daily average price –controls for seasonal and day-to-day changes Size measured as the variation in the diameter of the stalks in the bundle

Waugh’s Data Color measured as the number of inches of green on the stalks Number of stalks in a bundle

Check the Data 4 variables, 200 observations Find Means and Standard deviations Find correlations

Issues of estimation method Heteroskedasticity? Autocorrelation? Simultaneity? Omitted variables? Endogenous regressors? Correct functional form?

Regression Linear model –Interpretation Statistical significance Economic significance Semi-log model –What happens to observations? –Interpretation

Regression Log-log model –Interpretation –Significance

Summary Formulate a Model –Literature –Theory Gather Data –Check data –Descriptive statistics

Summary Estimate the Model –Test specification –Test hypotheses Write it up