Yinger paper on hedonic markets and sorting equilibria published in Journal of Urban Economics

Hedonic Markets and Sorting Equilibria: Bid-Function Envelopes for Public Services and Neighborhood Amenities

John Yinger

Journal of Urban Economics, February 2015

John M. Yinger

Economics Department

Public Administration & International Affairs Department

Center for Policy Research

Housing

Journal of Urban Economics

John M. Yinger

Hedonic regressions with house value as the dependent variable are widely used to study public services and neighborhood amenities. This paper builds on the theory of household bidding and sorting across communities to derive bid-function envelopes, which provide a form for these regressions. This approach allows for household heterogeneity and multiple amenities, yields estimates of the price elasticity of amenity demand directly from the hedonic without a Rosen two-step procedure, and provides tests of hypotheses about sorting. An application to Cleveland area data from 2000 yields price elasticities for school quality and neighborhood ethnic composition and supports the sorting hypotheses.