published in: Journal of Political Economy, 2004, 112 (S1), S60-S109
This paper considers the identification and estimation of hedonic models. We establish that in
an additive version of the hedonic model, technology and preferences are generically
identified up to affine transformations from data on demand and supply in a single hedonic
market. For a very general parametric structure, preferences and technology are fully
identified. This is true under a strong assumption of statistical independence of the error
term. It is also true under the weaker assumption of mean independence of the error term.
Much of the confusion in the empirical literature that claims that hedonic models estimated on
data from a single market are fundamentally underidentified is based on linearizations that do
not use all of the information in the model. The exact economic model that justifies widely
used linear approximations has strange properties so the approximation is doubly poor. A
semiparametric estimation method is proposed that is valid when a statistical independence
assumption is valid. Alternatively, under the weaker condition of mean independence
instrumental variables estimators can be applied to identify technology and preference
parameters from a single market. They are justified by nonlinearities that are generic features
of equilibrium in hedonic models.
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