Identification and stochastic specification in Rosen's hedonic price model

Joel L. Horowitz*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

The use of an explicitly specified utility function to derive the inverse demand functions in S. Rosen's hedonic price model provides considerable insight into the correct stochastic specification of the model. It turns out that except in special cases, the inverse demand equations are nonlinear in parameters and cannot be formulated conveniently as regression models. Moreover, the inverse demand functions and the hedonic price function must be estimated simultaneously to obtain consistent estimates of the parameters of these functions. A tractable estimation technique is described. It is desirable to derive the inverse demand functions from a utility specification that is not a strongly separable function of houses' attributes since strong separability implies the existence of deterministic relations among incomes, prices, and observed housing attributes that may fail to hold in applications. Finally, it is shown that the use of an explicitly specified utility function does not guarantee identification of the parameters of Rosen's model.

Original languageEnglish (US)
Pages (from-to)165-173
Number of pages9
JournalJournal of Urban Economics
Volume22
Issue number2
DOIs
StatePublished - Jan 1 1987

ASJC Scopus subject areas

  • Economics and Econometrics

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