Asked Dec 4, 2019
  1. What measurement issue is hedonic pricing meant to fix? Be specific as possible as why as measurements without it can fail to capture what the relevant statistic was designed to capture. How does it work in practice?


Expert Answer

Step 1

The hedonic price method is used to measure implicit price pertaining to a non-market good by using the surrogate goods. For example, house prices are being used for providing a value of specific environmental elements. It is a well-known fact that individuals are ready to pay a premium price if the house is located nearby a tourist place, but they may want to get a discount on a particular house which is located nearby a mining site.

Step 2

Price of house as well as other properties cannot be measured by only one variable. Different factors to be considered for its determination are:

      • Property features.
      • Knowledge about the location.
      • Determinants of environment.
Step 3

The hedonic price method uses the technique of regression analysis to measure relative importance taking into consideration the independent variables of prices of house and property. If, for example, using regression analysis we can find the correlation be...

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