A survey in applied environometrics: The hedonic valuing of environmental amenities: Fid-Bau Portal

A survey in applied environometrics: The hedonic valuing of environmental amenities

Donnelly, William A.

Abstract This paper surveys recent advances in determining the value for environmental amenities through considering the application of hedonic pricing models. These values may be used in benefit/cost analyses by decision-makers to assist in the evaluation of policy alternatives. Because environmental amenities are not marketed commodities (ones that are bought and sold directly), establishing their value is a difficult proposition, but one which may be addressed through resort to implicit pricing models. These are the basis for establishing the so-called “hedonic prices.” The implied values are derived by way of statistical inference, through reliance upon multivariate regression analysis of marketplace transactions of a composite good that incorporates, as an attribute, the environmental amenity in question. Since any particular facet of the composite good is not in itself being individually traded; e.g., durability, quality, prestige, quiet, etc., an inferential approach utilizing environometric methods provides the mechanism for evaluating the buyer's “willingness to pay” for the specific features which cannot, logically, be marketed separately. The statistical analysis provides for the establishment of a metric for the values being sought.