Hedonic Pricing

Hedonic pricing techniques estimate the value of a certain environmental effect by analysing prices variations on a market that is influenced by that effect. The market is called “surrogate”, in that it is considered as a proxi of the targeted environmental assets. For example, a technique used to estimate the damage to the recreational value of a protected area due to an industry location in the area is the travel costs method, which measures the reduction of the travel costs afforded by the visitors to the protected area. In a similar way, differences in wage levels between jobs with different health risk may be used to evaluate mortality risk (value of statistical life). Hedonic pricing presents the advantage of measuring damages of intangible assets by taking into account the real consumers’ choices. The hedonic techniques are designed in order to scrub the influence of other non-environmental factors that may influence prices in the surrogate market. For example hedonic pricing is used to estimate the amenity damage of noise (noise non sanitary effect); in this case econometric techniques are applied in order to analyse the specific effect on the real estate prices of environmental noise variations.

© 2006 - Andrea Molocchi