Using detailed data on housing transaction prices, house attributes and neighbor

Question

Using detailed data on housing transaction prices, house attributes and neighborhood characteristics, a researcher estimates the following hedonic price function P_i= 8 + 2.5 SCHOOL_i - 0.03CRIME_i - 0.08OZONE_i + 0.1 FT 2_i + 3 BATHROOMS_i where P_i is the price of house i measured in $10,000's, SCHOOL_i is a measure of the quality of the school associated with the house, CRIMEi is the number of property crime incidents in the neighborhood surrounding the house, OZONEi measures the max 8 hour ozone concentration over the course of the year in the neighborhood surrounding the house, FT2i measures the square footage of the house, and BATI IROOMSi measures the number of bathrooms in the house. What is the hedonic measure of the willingness to pay for a 10-unit reduction in the max 8 hour ozone concentration?

Explanation / Answer

Regression equation: P = 8 + 2.5 School - 0.03 Crime - 0.08 Ozone + 0.1 FT + 3 Bathroom

Coefficient of the variable OZONE = -0.08

A 10-unit reduction in the variable OZONE will thus reduce P by 10(0.08) = 0.8

Thus, price (hedonic measure of willingness to pay) falls by 0.8(10,000) = $8000 when max 8 hour ozone concentration falls by 10 units.

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