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Last modified
1/25/2010 6:47:15 PM
Creation date
10/5/2006 12:59:32 AM
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Floodplain Documents
County
Statewide
Basin
Statewide
Title
Colorado Association of Storm Water and Floodplain Managers 8th annual Conference
Date
9/22/1997
Prepared For
State of Colorado
Prepared By
CASFM
Floodplain - Doc Type
Educational/Technical/Reference Information
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<br />Freeman (1993) presents the basic hedonic property model as the price of a property . <br /> <br /> <br />as a function of its structural, neighborhood, and environmental characteristics, or: <br /> <br />(1) <br /> <br />p.= f (S. N. Q.\ <br />I I' l' iJ <br /> <br />where Pj=price of property i <br />S; = structural characteristics of i <br />Nj=neighborhood characteristics of i <br />Q;=environmental quality characteristics of i <br /> <br />Both Freeman (1993) and Palmquist (1991) agree that the above equation should be nonlinear <br /> <br />based on the fact that in the housing market, "repackaging" of property characteristics is <br /> <br />unlikely, That is to say, individual characteristics of each property cannot be varied <br /> <br />independently. In a particular property's "bundle," a consumer cannot trade two rooms for <br /> <br />better air quality, Thus, consumers must choose a "bundle" that best meets their needs. The <br /> <br />marginal implicit price of a characteristic is the partial derivative of the fIrst stage hedonic <br /> <br />price function in equation (1) with respect to a marginal change in Qj, or "the additional <br /> <br />amount that must be paid by any household to move to a bundle with a higher level of that <br /> <br />. <br /> <br />characteristic, all other things being equal" (Freeman 1993), A nonlinear hedonic function <br /> <br />yields a marginal implicit price for a characteristic that depends on the level of that particular <br /> <br />attribute and on the level of other characteristics as well, In the second stage hedonic, <br /> <br />estimates of residents' WTP for different levels of each attribute can be obtained. <br /> <br />Specifying the Hedonic Pricing Model <br /> <br />The dependent variable of an hedonic price function is the full price of house and <br /> <br />land, and is regressed against the expected determinants of property price, Freeman (1993) <br /> <br />rnaintain~ that data on actual market transactions are preferred, but if professional assessors' <br /> <br />values are used, care must be taken to assure that they approximate actual sales value, Data <br /> <br />. <br /> <br />4 <br />
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