Journal of Real Estate Finance and Economics, 22:2/3, 303±318, 2001
# 2001 Kluwer Academic Publishers. Manufactured in The Netherlands.
Does the Measurement of Property and Structural
Characteristics Affect Estimated Implicit Prices for
Environmental Amenities in a Hedonic Model?
KEVIN J. BOYLE
Department of Resource Economics and Policy, University of Maine
LAURA O. TAYLOR
Department of Economics, Andrew Young School of Policy Studies, Georgia State University
Hedonic models are commonly used to estimate marginal willingness to pay for environmental amenities. These
studies utilize variables that are assumed to be measured without error (such as the square footage of the lot or the
number of bedrooms) and proxy variables (such as neighborhood or school quality). Lot and structural
characteristics may in fact be measured with error. Potential sources of error include inaccurate measures and
inconsistent updating. We investigate the effect of using tax-assessor data versus survey data from purchasers to
estimate the implicit price of an environmental amenity, lake-water clarity. Convergent validity of the implicit
price for water clarity is established if the town and survey data provide statistically indistinguishable estimates of
implicit prices for this amenity. Overall, the town-of®ce and survey data on property characteristics were not
statistically different in three of the four market groupings examined, which suggests that the traditional
municipal sources of these data may not contain substantial measurement error. Furthermore, convergent validity
is satis®ed in all four market areas. However, differences in computed implicit prices of clarity in two of the
market areas are large enough that policy decisions for environmental quality could be affected by the source of
the lot and structural data.
Key Words: hedonics, measurement error, convergent validity, environmental amenities, water clarity
Hedonic models are commonly used to estimate marginal willingness to pay for site-
speci®c environmental amenities (e.g., Kiel, 1995; Kiel and McClain, 1995; Nelson et al.,
1992; Palmquist et al., 1997). In these studies, as well as other applications of hedonic
models to property sales, data availability often drives the variables that are included in the
hedonic equation. Hedonic property-value studies typically utilize two types of variables:
those that are assumed to be measured without error (such as the square footage of a
property or the number of bedrooms in a structure) and proxy variables (such as
neighborhood or school-quality measures). The proxy variables are hoped to be reasonably
well correlated with the ``true'' factors that are capitalized into a property's value.
Nonetheless, the use of proxy variables introduces the potential for errors-in-variables
problems leading to biased estimates of all coef®cients.