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<br />. The dependent variable in the regressions is the assessed value of the properties at the <br /> <br />time of sale. It is not significantly different from the actual sale value. This is not <br /> <br />surprising because with California's Proposition 13, assessed property values are updated to <br /> <br />the new market price at the time of sale. A Box-Cox transformation was employed to <br /> <br />determine the functional form which fits the data and the variables which best explained the <br /> <br /> <br />variation in the dependent variable (the assessed value in real terms). <br /> <br />To conduct multiple regression analysis, the question of functional form was <br /> <br /> <br />addressed using the Box-Cox transformation method (Greene 1992). This method allows for <br /> <br /> <br />the transformation of both the dependent and independent variables. The Box-Cox <br /> <br /> <br />transformation indicated a non-linear functional form fit the data. This model was used in <br /> <br /> <br />the multiple regression analysis. The Box-Cox transformation method allows for <br /> <br />. transformations of both the 1eft-hand-side and right-hand-side variables in a regression <br /> <br />equation, depending on the nature of the data and the interaction of the independent and <br /> <br /> <br />dependent variables. Preliminary regressions were attempted using all four possible Box-Cox <br />specifications: transformation of the dependent variable by lambda, the independent variables <br />by lambda, both independent and dependent variables by lambda and transforming the <br />dependent variable by theta and the independent variables by lambda. Using LIMDEP <br />(Greene 1992), the model chosen for this data set transforms only the dependent variable, <br />assessed property value. Based on the minimum value of the log-likelihood value, <br />preliminary regressions indicated this transformation was best. Lambda represents the <br />exponent to which the dependent variable is raised. The model is nonlinear as is suggested <br />by the hedonic price theory reviewed previously, <br /> <br />. <br /> <br />11 <br />