ABSTRACT
The application of hedonic price theory in the real estate market is widespread. Hedonic analysis can be used as an input into welfare- and policy-impact studies and to estimate implicit prices or costs for nonmarket goods or externalities. Many empirical studies show that the market value of land and the annual rent earned from employing land as an industry input can have a weak statistical relationship. The real estate market has been a popular and well-suited area for the application of welfare and implicit price analysis. The real estate market has a great deal in common with S. Rosen’s model of the implicit price market. Much of economics literature focuses on market-level estimates of inverse supply and/or demand functions for those characteristics. A focus on industry rent represents a more narrow approach to market analysis than does parcel price. The problem with conducting welfare analysis within a specific industry using land values is that only the market price is observed.
