Hedonics setup 1: In class we introduced a case where people have heteroge-neous preferences in our sorting exercise. The types of households, their value of environmental quality, and the number of each type are repeated here for reference. We will ignore school quality in this problem. Neighborhood A will have a price of 0 regardless of the number of people living there, whereas the price equals the number of households in all other neighborhoods. The utility of a person living in a neighborhood is U = aEQ — P. This is the same setup as in class. Card type x Number of HH yellow 6 5 green 5 15 orange 4 10 pink 3 5 blue 2 25 red 1 15 Consider the case below, where all neighborhoods have EQ of 6, except neighbor-hood A which has an EQ of 1. EQ A 1 B 6 C 6 D 6 E 6 F 6 Answers the following Q1. List the equilibrium prices in each neighborhood. Q2. Is this marginal valuation revealed in this equilibrium an overestimate, an under-estimate, or an accurate estimate of the average (mean) a in the population? (The true average is a weighted average, based on the a of each type and the number of that type in our economy.)
Hedonics setup 1: In class we introduced a case where people have heteroge-neous preferences in our sorting exercise. The types of households, their value of environmental quality, and the number of each type are repeated here for reference. We will ignore school quality in this problem. Neighborhood A will have a price of 0 regardless of the number of people living there, whereas the price equals the number of households in all other neighborhoods. The utility of a person living in a neighborhood is U = aEQ — P. This is the same setup as in class.
| Card type | x | Number of HH |
| yellow | 6 | 5 |
| green | 5 | 15 |
| orange | 4 | 10 |
| pink | 3 | 5 |
| blue | 2 | 25 |
| red | 1 | 15 |
Consider the case below, where all neighborhoods have EQ of 6, except neighbor-hood A which has an EQ of 1.
| EQ | |
| A | 1 |
| B | 6 |
| C | 6 |
| D | 6 |
| E | 6 |
| F | 6 |
Answers the following
Q1. List the
Q2. Is this marginal valuation revealed in this equilibrium an overestimate, an under-estimate, or an accurate estimate of the average (mean) a in the population? (The true average is a weighted average, based on the a of each type and the number of that type in our economy.)
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