Estimating the Implicit Price Elasticity of the Demand for Neighborhood Amenities : A Hedonic Approach

Starting from the pioneering work by Rosen(1974), plenty of studies propose new approaches that can avoid endogeneity in the Rosen’s two-step procedure and recover the heterogeneous preferences from the hedonic framework. Motivated by the previous studies, this paper proposes an alternative approach, which yields a likelihood-based estimator for the implicit price elasticity of amenity demand, with an empirical application to a cross-sectional hedonic data set. Besides estimation of the implicit price elasticity of amenity demand, my approach also allows for simultaneous estimation of the implicit price elasticity of housing demand, nonparametric characterization of the sorting equilibrium and partial recovery of households’ bid functions up to a constant