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Risk and Information: a Hedonic Price Study in the New Zealand Housing Market *
Author(s) -
MAANI S. A.,
KASK S. B.
Publication year - 1991
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1991.tb02549.x
Subject(s) - hedonic pricing , economics , hedonic index , willingness to pay , econometrics , hazard , hedonic regression , microeconomics , list price , house price , market price , price index , real estate , finance , chemistry , organic chemistry
This paper employs the hedonic price approach developed by Rosen (1974) and recently extended to study the effects of potential natural hazards on consumer behaviour. Hedonic prices are used to estimate home buyers' willingness to pay to avoid a high‐pressure gas pipeline installed in a residential area Studies of risk and information (e.g. Brookshire et al., 1985, Smith and Johnson, 1988) suggest that the subjective probability of a hazard occurring differs from the objective probability. If we allow for this, and relax the assumption of full information on the part of home buyers, our theoretical analysis indicates that a single hedonic price is not sufficient because hedonic prices are likely to change with a change in information. Our empirical analysis of cross‐sectional data across time is in accord with the theoretical model, although not highly significant