Collaborative Research on the Formulation, Estimation, and Identification of Hedonic Pricing, Demand and Supply Models

National Opinion Research Center, Chicago IL

Investigators

Abstract

This award is jointly supported by the Division of Mathematical Sciences and the Directorate for Social, Behavioral, and Economic Sciences as part of the Mathematical Sciences Priority Area. Economics models for hedonic markets characterize the pricing of differentiated goods viewed as bundles of attributes, and the demand and supply of those attributes under different market structures, preferences, and technologies. Hedonic models provide insight into the economics of variety and heterogeneity, which are features of modern labor and product markets. Using hedonic models, it is possible to interpret wage data for heterogeneous labor, evaluate workplace safety laws and analyze subsidies for wages and job training in terms of their impacts on equilibrium wages and prices and on market participant welfare. Hedonic models lie at the heart of modern methods to adjust cost of living indices for changes in quality. This research will develop the economic foundations of hedonic models in more general settings than have been developed to date. Specifically, the research will characterize the properties of alternative hedonic economies, including the existence and uniqueness of hedonic pricing models in multi-attribute models under different assumptions about dimensions of heterogeneity that characterize agents, competitive structure of markets, the grouping of agents into coalitions, characteristics priced in the market, and the nature of the heterogeneity of agents. Computation of hedonic equilibria is of interest in its own right, and for determining the consequences of alternative assumptions on pricing, as well as for exploring the impacts of different policies on producer and consumer welfare. It is also an essential ingredient in the econometric analyses we propose to conduct. Our analysis of existence and uniqueness is a vital step in developing computationally robust methods for simulating hedonic economies and for recovering preferences and technologies from hedonic economies. This research will also conduct and econometric analyses of hedonic economies under alternative assumptions about market structure, technology and preferences, and the information available to agents and to econometricians. We will conduct identification analysis and develop nonparametric and semiparametric methods to recover the primitives of preferences, technology, the distributions of productivities and preferences. We will apply these econometric methods to analyze the determinants of earnings, housing prices and public goods using data on individuals, firms, and communities. We also propose to examine identification problems in models of social interactions using information on prices to solve identification problems.