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Hedonic Regressions

Hedonic Regressions. Price indices, quality control, and valuation of public services. Some Theory. Multiple characteristics of goods Ala carte or combination platter From Industrial Organization, think of bundling Contribution/value of specific attributes Value of crash safety in car price

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Hedonic Regressions

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  1. Hedonic Regressions Price indices, quality control, and valuation of public services

  2. Some Theory • Multiple characteristics of goods • Ala carte or combination platter • From Industrial Organization, think of bundling • Contribution/value of specific attributes • Value of crash safety in car price • value of school quality in home price • Equilibrium of Supply and Demand

  3. Early Hedonics • Frederick Waugh - Quality Factors Influencing Vegetable Prices (1927) • Andrew Court - Hedonic Price Indexes with Automotive Examples (1939) • Gregory Chow - Technological Change and the Demand for Computers (1967)

  4. Formulate a Model • What determines the Price of Asparagus? • Anything that shifts supply or demand • Characteristics of the vegetable • Time of year • “Good” year - weather, crop disease, insect infestation • Tastes and preferences • Income • Population

  5. Formulate a Model • What relationships do you expect? • Does price rise or fall with “Green”? • Does it rise or fall with “Nostalks”? • Does it rise or fall with “Disperse”? • Are marginal effects of characteristics constant? • Do marginal effects of some characteristics depend on other characteristics?

  6. Waugh’s Data • http://research.umbc.edu/~coates/ec611/Waugh.txt • Open Excel or Quattro • Copy the data from the web browser • Paste it into Excel and parse it into separate columns • Save as a text file (tab delimited) • Read into Stata using the insheet command

  7. Waugh’s Data • Determined price, size and color variation, and the number of stalks in bundles of asparagus • Price is price of a bundle relative to daily average price • controls for seasonal and day-to-day changes • Size measured as the variation in the diameter of the stalks in the bundle

  8. Waugh’s Data • Color measured as the number of inches of green on the stalks • Number of stalks in a bundle

  9. Check the Data • 4 variables, 200 observations • Find Means and Standard deviations • Find correlations

  10. Issues of estimation method • Heteroskedasticity? • Autocorrelation? • Simultaneity? • Omitted variables? • Endogenous regressors? • Correct functional form?

  11. Regression • Linear model • Interpretation • Statistical significance • Economic significance • Semi-log model • What happens to observations? • Interpretation

  12. Regression • Log-log model • Interpretation • Significance

  13. Summary • Formulate a Model • Literature • Theory • Gather Data • Check data • Descriptive statistics

  14. Summary • Estimate the Model • Test specification • Test hypotheses • Write it up

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