In particular, prices paid when models are first introduced may be affected by a number of factors that confound quality adjustment: When a model first appears, the novelty of the item may lead select early-adopter consumers to pay a premium for the item that does not persist over time. Our rationale for including an introduction-quarter dummy is to account for price variation over the model life cycle that does not merit inclusion in measured quality-adjusted price trends. We also include a dummy for models in their quarter of introduction. 22 Specifically, we include dummies for phone manufacturer (there are 43 in our dataset), for operating system (there are 58 in our dataset, for example, “Android Froyo 2.2”), for telecommunications generation (2G, 3G, 3.5G, 4G), and for input type (QWERTY keyboard vs. (17.1), regressing (the natural log of) price on four continuous measures of engineering capability (storage capacity, screen size, camera resolution, and processor speed, all in natural log form) and an array of dummy variables. Sichel, in Measuring Economic Growth and Productivity, 2020 17.4.2 Hedonicįor our hedonic indexes, we first consider the simple, time-invariant specification in Eq. The combination of improved data availability and new (or revisited) methods for completing first- and second-stage hedonic analyses promises to keep hedonic valuation in the forefront of nonmarket valuation research on the environment.Īna Aizcorbe. Newer approaches in second-stage analysis require somewhat fewer data than the traditional multimarket approach and show substantial promise for broadening the use of second-stage hedonic estimation. In this case, a second-stage analysis is needed that adds information on households to estimate underlying demands or utility parameters. Furthermore, the first-stage hedonic model is sometimes insufficient to recover WTP for an environmental amenity, or a researcher is specifically interested in how demographic characteristics relate to WTP. Specification of the hedonic model, measurement error, omitted variables, and endogenous regressors are some of the major considerations, and each topic is the subject of active research. The hedonic model, while a powerful and frequently used tool in nonmarket valuation, has many considerations that must be addressed when attempting to identify the marginal WTP for an environmental amenity through observations on housing prices. Taylor, in Encyclopedia of Energy, Natural Resource, and Environmental Economics, 2013 Conclusions