On the theoretical derivation of a functional form for the hedonic price function

Lisi, Gaetano (2012): On the theoretical derivation of a functional form for the hedonic price function.

Abstract

The key issue in the hedonic price theory is that although the literature emphasises the intrinsic nonlinearity in the relationship between house prices and housing characteristics, very little theoretical guidance is provided regarding the more appropriate mathematical specification for the hedonic price function. Thus, most empirical studies make use of flexible functional forms or simple linear models which possess a direct economic meaningfulness. This theoretical paper fills this gap by using the Mortensen-Pissarides matching model to show both the nonlinearity of the hedonic price function and the more appropriate functional relationship between prices and attributes.

• Item Type: MPRA Paper
• Language: English
• Keywords: hedonic price theory; hedonic price function; search and matching process
• Subjects: J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J63 - Turnover ; Vacancies ; Layoffs; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R31 - Housing Supply and Markets

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