Lecture 9

Question 1

What is the idea behind the hedonic pricing method (HPM)?

Answer 1

Based on idea that the values people place on environmental quality can be inferred from what they pay for goods incorporating environmental quality

Question 2

Example of HPM?

Answer 2

Houses:
By looking at different houses and recording all different benefits and disadvantages they have, we can relate these attributes to their value. Then through regression analysis we can hold all factors constant except one (eg. a nice view) and thus see the value consumers put on it

Question 3

Equation for HPM?

Answer 3

P = α0 + α1Χ1 + α2Χ2

Where alpha is a coefficient telling us the change in P for a one unit increase in Xn

Question 4

4 issues with the HPM?

Answer 4

Lots of statistical analysis needed
Subtle effects on house prices are difficult to quantify
HPM can register ‘non-use’ values
Anthropomorphic - conducted from the view of human welfare