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On the use of hypothetical price data to estimate hedonic models in a develo** country context

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Abstract

Given the lack of market-based property price data in develo** countries, imputed rental prices have been recently used to estimate the implicit value of some home characteristics and related amenities. This study assesses the validity of using imputed rental prices to estimate hedonic models in a develo** country context. Using data from Guatemala, we compare the derived implicit values of housing characteristics from hedonic models using hypothetical and actual rental prices. We estimate an endogenous switching regression model to control for potential endogeneity of the decision to rent a home. Our results indicate that hedonic models with hypothetical and true rental prices yield statistically different estimates of marginal values for some housing characteristics.

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Notes

  1. Using appraisal values is also questionable because those values are often determined by simple formulas which do not account for all amenities that influence a buyer’s decision to purchase a property (Ma and Swinton 2012). Ma and Swinton (2012), Rush and Bruggink (2000), and Schuler (1990), among others, found that hedonic models of appraisal values may yield biased estimates of property attributes and environmental amenities.

  2. Related studies have shown that homeowners systematically overestimate the value of their properties relative to market prices by about 3–8% in the United States (Chan et al.2016; Benítez-Silva et al. 2015; Banzhaf and Farooque 2013; Goodman and Ittner 1992) and 1–2.5% in Australia (Windsor et al. 2015; Melser 2013). Yet, Banzhaf and Farooque (2013) argue that hypothetical values may be a practicable alternative in some cases because they are closely correlated to actual transaction prices.

  3. For brevity, those results are not presented here but are available from the authors upon request.

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Acknowledgements

The authors would like to thank the anonymous reviewer for suggestions and comments on previous drafts of this manuscript.

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Authors and Affiliations

  1. Fairfield University, 1073 North Benson Rd, Fairfield, CT, 06824, USA

    William F. Vásquez

  2. Bryant University, 1150 Douglas Pike, Smithfield, RI, 02917, USA

    Laura Beaudin

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  1. William F. Vásquez
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Correspondence to William F. Vásquez.

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Appendix

Appendix

see Table 3

Table 3 Estimated coefficients of instrumental variables in selection equation
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Vásquez, W.F., Beaudin, L. On the use of hypothetical price data to estimate hedonic models in a develo** country context. Lett Spat Resour Sci 13, 219–231 (2020). https://doi.org/10.1007/s12076-020-00255-0

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