Munich Personal RePEc Archive

Difference-in-Difference Hedonics

Banzhaf, H. Spencer (2019): Difference-in-Difference Hedonics.

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Traditional cross-sectional estimates of hedonic price functions theoretically can recover marginal willingness to pay for characteristics, but face endogeneity problems when some characteristics are unobserved. To help overcome such problems, economists have introduced difference-in-differences and other quasi-experimental econometric methods into the hedonic model. Unfortunately, the welfare interpretation of the estimands has not been clear. This paper shows that, when they condition on baseline data, they identify the "average direct unmediated effect" on prices from a change in characteristics. It further shows that this effect is a lower bound on welfare, specifically Hicksian equivalent surplus plus the change in profits. The paper illustrates these results with an application to toxic facilities' effects on housing prices.

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