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.