The Hedonic model

a. In the standard graph of the hedonic model, why do the curves for each consumer slope upwards?

b. If water pollution is correlated with other home characteristics, does this create omitted variables bias that invalidates the hedonic model? Why or why not?

c. What is the difference between consumer #1 and consumer #2?

d. If some residents do not fully perceive air pollution, does this invalidate the use of the hedonic model to recover households willingnesstopay for air pollution? Why or why

not?

e. Suppose you want to measure the most important benefits of clean air. You use epidemiological estimates to measure the health benefits, the hedonic model to assess the benefits due to increases in home prices, travel methods to estimate the recreational benefits, similar methods to estimate other benefits, and then sum these up. Is this a sensible strategy?

House Price Supplier #2 Consumer #2 #2 P2 Difference in Valuation of Air Quality Level 2 between Consumers #1 and #2 Supplier #1 #3 P72 Consumer #1's Valuation of an Improvement in Air Quality from tog? P1 #1 Consumer #1 GP c? Air Quality