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<br />. <br /> <br />economic contribution of an urban stream restoration program and allows comparison to the <br /> <br /> <br />costs of such a program (U,S. Water Resources Council 1983), <br /> <br /> <br />Estimating residents' willingness to pay (WTP) for improvements in urban streams <br /> <br /> <br />can be accomplished by using the hedonic price method. Hedonic pricing uses residential <br /> <br />property value differentials to measure changes in WTP for environmental amenities in two <br /> <br />stages. The slope of the first stage hedonic. equation measures how the value of the property <br /> <br />changes with a small change in the level of an attribute. The second stage hedonic measures <br /> <br />the demand for larger changes in the levels of that attribute, allowing calculation of the <br /> <br />residents' WTP for that change. In this study, we used the first stage hedonic function to <br /> <br /> <br />measure a discrete value resulting from performing a specific stream restoration measure. <br /> <br />We hypothesized that properties along streams that have been restored will exhibit higher <br /> <br /> <br />. property values than areas that have not been restored, if buyers perceive restored streams as <br /> <br />an amenity, Price differentials between the two areas can be statistically related to stream <br /> <br /> <br />improvements via multiple regression analysis. <br /> <br />BASICS OF THE HEDONIC PRICE METHOD (HPM) <br />The theory behind the HPM, as explained by Palmquist (1991), lies in differentiated <br /> <br />consumer products. Houses that are single commodities differ in environmental attributes at <br /> <br />their location. Consumers select propertie$ for the number and quality of characteristics that <br /> <br /> <br />are present at the site. Housing price differentials, therefore, reflect differences in housing <br /> <br />characteristics (Freeman 1993). <br /> <br />. <br /> <br />3 <br />