On the Functional Form of the Hedonic Price Function: A Matching-theoretic Model and Empirical Evidence
Author
Start Page / End Page
Volume
Issue Number
Year
Publication
Gaetano Lisi
189 / 207
16
2
2013
International Real Estate Review
Abstract
The key issue in the hedonic price theory is that although the literature emphasises intrinsic nonlinearity in the relationship between house prices and housing characteristics, very little theoretical guidance is provided with regards to a more appropriate mathematical specification for the hedonic price function. Thus, most empirical studies make use of flexible functional forms or simple linear models which possess a direct economic meaningfulness. This theoretical paper attempts to fill this gap by using the Mortensen-Pissarides matching model to show the nonlinearity of the hedonic price function and provide insights on the more appropriate functional relationship between prices and attributes.
Keywords
Hedonic price theory; Hedonic price function; Search and matching models