Credit Constraints and Bias in Hedonic Amenity Valuations

Heilbron, John (2021): Credit Constraints and Bias in Hedonic Amenity Valuations.

Abstract

I demonstrate that credit constraints bias price-based (cf. rent-based) hedonic valuations of local public amenities. Mis-measurement of the private value of local public amenities distorts welfare analysis and could cause under-investment in amenities. I introduce a method to measure this bias by applying the hedonic framework to a problem of mortgage choice in the presence of credit constraints. I use Fannie Mae pricing grids and private mortgage insurance requirements to construct borrower-level mortgage choice menus and estimate the extent of bias among fixed-rate agency loan borrowers. I find evidence that traditional hedonic techniques understate the value of amenities by ~50%.

• Item Type: MPRA Paper
• Language: English
• Keywords: Household Finance, Housing Demand
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; H - Public Economics > H8 - Miscellaneous Issues > H81 - Governmental Loans ; Loan Guarantees ; Credits ; Grants ; Bailouts; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand

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