Working Paper No. 09-15
Valuing public goods with changing implicit prices
Traditional panel data methods applied to estimate hedonic models assume that the implicit prices of housing attributes remain constant over time. In this paper I demonstrate that this assumption may not hold true when there are large changes in the supply of the public good over time, and failure to account for changing implicit prices can lead to biased estimates of the value of changes in public goods. I use air quality in southern California, measured as exposure to toxic air emissions, to demonstrate the effect of violating the assumption of constant implicit prices on estimates of the implicit price for air quality improvements.