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A hedonic cost function approach to agricultural land prices

University of British Columbia

Since Sherwin Rosen's paper on implicit markets and hedonic functions, there has been an increase in the application of hedonics theory. These applications have almost exclusively dealt with consumer choice and the implicit consumer demand for attributes. The methodology usually entails the two stage procedure of initially obtaining implicit prices from the hedonics function and then using these prices as dependent variables in a system of bid functions. In this thesis, a system of bid functions for land attributes is derived from a Generalized Leotief cost function of the British Columbia dairy industry. These bid functions were estimated with land characteristics data from records of dairy land transactions. The proposed paper provides several interesting extensions to the present applied work in this area. The application of duality results in the specification and derivation of bid functions provide an important improvement in existing methodology since economic structure can be improsed and consistency of derivation can be obtained. Also, despite its popularity in consumption analysis, the application of hedonic theory in production and the derived demand for inputs have not been addressed. Two main results are discussed in the thesis. The first concerns identification of cost function parameters (and therefore the dual production technology) through the system of bid functions in the absence of input quantity data. The second result is that in the context of land attribute choices in agricultural production, the question of endogenous and exogenous implicit prices are important concerns as some implicit attribute prices are determined by non-production related factors. It is shown that linear homogeneity of attributes in the hedonic function is a necessary condition for exogenous implicit prices.

Text

2010-04-21

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http://hdl.handle.net/2429/23998

Agricultural Economics

University of British Columbia

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