Comparison of the Accuracy of the Minimum-Variance Grid Method and the Least Squares Method – A Non-Linear Extension

Lai and Wang's (1996) work suggests that under most circumstances, property valuation based on Vandell's (1991) minimum-variance grid method is more accurate than the valuation based on a linear hedonic pricing model with its coefficients estimated using ordinary least squares technique. This study extends the comparison to the non-linear case. We have shown that Lai and Wang's results also hold even when the hedonic price model is non-linear in its coefficients under the same conditions specified in Lai and Wang. Furthermore, we have also derived the necessary and sufficient conditions under which minimum-variance grid method is more accurate than the least squares method