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Title: Estimating the Marginal Willingness to Pay Function Without Instrumental Variables

Citation Type: Miscellaneous

Publication Year: 2013

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Abstract: The hedonic model of Rosen (1974) has become a workhorse for valuing the characteristics of differentiated products despite a number of well-documented econometric problems. Among these is a source of endogeneity in the second stage of Rosen's procedure that has proven difficult to overcome. In this paper, we outline a simple, likelihood-based estimation approach for recovering the marginal willingness-to-pay function in a parametric framework that avoids this endogeneity problem. Applying this estimator to data on large changes in violent crime rates, we find that marginal willingness-to-pay increases by ten cents with each additional violent crime per 100,000 residents. Accounting for the slope of the marginal willingness-to-pay function has significant impacts on welfare analyses.

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Authors: Bishop, Kelly C.; Timmins, Christopher

Publisher: Washington University in St. Louis

Data Collections: IPUMS USA

Topics: Other

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