Advantages of the Hedonic
Pricing Method:
¥ The methodÕs main strength is that it can be used to estimate values based on actual
choices.
¥ Property markets are relatively efficient in responding to
information, so can be good indications
of value.
¥ Property records are typically very reliable.
¥ Data on property sales and characteristics are readily
available through many sources, and can be related to other secondary data sources to obtain
descriptive variables for the analysis.
¥ The method is versatile, and can be adapted to consider several possible
interactions between market goods
and environmental quality.
¥
Issues and
Limitations:
¥ The scope of environmental benefits that can be measured is
limited to things that are related to housing
prices.
¥ The method will only capture peopleÕs willingness
to pay for perceived differences in environmental attributes, and their direct consequences. Thus, if
people arenÕt aware of the linkages between the environmental attribute and benefits to them or
their property, the value will not be reflected in home prices.
¥ The method assumes that people have the opportunity to select the combination of features they prefer, given their income. However, the
housing market may be affected by outside influences, like taxes, interest rates, or other
factors.
¥ The method is relatively complex to implement and interpret,
requiring a high degree of statistical
expertise.
¥ The results depend heavily on model specification.
¥ Large amounts of data must be gathered and manipulated.
¥ The time and expense to carry out an application depends on
the availability and accessibility of data.