![]() ![]() If the price difference between the two houses is less than buyers’ WTP for the additional room, then buyers will try to buy house B, driving up its price until the equilibrium is reached.In a competitive market, the price difference between the two houses reflects the value of the additional room of house B.The only difference is that house A has 2 bedrooms, while house B has 3 bedrooms.Let’s consider 2 residential properties identical in all characteristics and localization.This is the starting point to assess the WTP for the environmental characteristic The basic idea is to use the systematic variation in the price of a good that can be explained by an environmental characteristic of the good.Hedonic prices are identified through a comparison of similar goods that differ for the quality of one characteristic.Problem of estimating hedonic equations.The composite good has a price, but there is no explicit price for each characteristic that compose the good.Distance from public transport, distance from the city centre, distance from main roads, distance from shops, distance from sport facilities, crime rate, average income of inhabitants, presence of a university, etc.Number of floors, presence of a garden, GCH, number of bedrooms, number of bathrooms, square footage of the house, type of house, age, materials, etc.Consider the characteristics of a house:.The hedonic pricing method uses the same idea that goods are composed by a set of characteristics.In the conjoint analysis and in the multi-site travel cost model we saw that goods (or sites) can be described by a set of attributes or characteristics.=> therefore, the housing market give us some information on buyers preferences for housing and for their localization.The constraints in the maximization problem are given by income, the price of the houses and the level of taxes.We assume that buyers choose houses that maximize their utility.Distance from work, availability of public services, distance from schools, availability of green areas, availability of sport facilities, characteristics of housing (# of bedrooms, # of bathrooms, flat, detached, etc.) etc.The choice of housing is a composite good.Which are the important elements of a house that determine its price?.Which characteristics of an area affect housing prices?.Which factors push companies to choose one location rather than another?.No need to build a hypothetical market.We gather data that come from the market.Markandya Department of Economics and International Development University of Bath tel. ![]()
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