Valuing Time-Varying Attributes Using the Hedonic Model : When is a Dynamic Approach Necessary?

We build on the intuitive (static) modeling framework of Rosen (1974) and specify a simple forward-looking model of location choice. We use this model, along with a series of insightful graphs, to describe the potential biases associated with the static approach and relate these biases to the time-series of the amenity of interest. We then derive an adjustment factor that allows the potentially biased static estimates to be converted into forward-looking estimates. Finally, we motivate the use of this adjustment factor with two empirical applications: the marginal willingness-to-pay to avoid violent crime and the marginal willingness-to-pay to avoid air pollution