Estimating the marginal willingness to pay function without instrumental variables

Journal Article (Journal Article)

The hedonic model of Rosen (1974) has become a workhorse for valuing the characteristics of differentiated products despite a number of well-documented econometric problems, including a source of endogeneity that has proven difficult to overcome. Here we outline a simple, likelihood-based estimation approach for recovering the marginal willingness-to-pay function that avoids this endogeneity problem. Using this framework, we find that marginal willingness-to-pay to avoid violent crime increases by sixteen cents with each additional incident per 100,000 residents. Accounting for the slope of the marginal willingness-to-pay function has significant impacts on welfare analyses.

Full Text

Duke Authors

Cited Authors

  • Bishop, KC; Timmins, C

Published Date

  • January 1, 2019

Published In

Volume / Issue

  • 109 /

Start / End Page

  • 66 - 83

International Standard Serial Number (ISSN)

  • 0094-1190

Digital Object Identifier (DOI)

  • 10.1016/j.jue.2018.11.006

Citation Source

  • Scopus