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Willingness to pay for water and location bias in hedonic price analysis: evidence from the Indonesian housing market

Published online by Cambridge University Press:  21 November 2005

ARIEF ANSHORY YUSUF  and
PHOEBE KOUNDOURI
ARIEF ANSHORY YUSUF
Affiliation:
Department of Economics and Development Studies, Padjadjaran University, Bandung, Indonesia. Research School for Pacific and Asian Studies, Australian National University. E-mail: anshory@bdg.centrin.net.id
PHOEBE KOUNDOURI
Affiliation:
Department of Economics, University of Reading, UK. Department of Economics/CSERGE, University College London, UK.
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Abstract

Hedonic valuation of quality attributes can be misleading when the assumption that these attributes are exogenous to sample selection is violated. This paper considers the simultaneity between hedonic valuation and sample selection in the context of a model of consumer behavior over packaged goods and investigates empirically how the decision on house location (urban/rural) affects the household's valuation of water-related characteristics of the house in question. The empirical analysis uses data from the Indonesian housing market and suggests that households value access to safe and improved domestic water sources. However, failing to correct for sample selection results in a biased valuation of willingness to pay for house characteristics. This might misguide policy recommendations for improved provision of domestic water, based on cost–benefit analysis.

Type
Research Article
Information
Environment and Development Economics , Volume 10 , Issue 6 , December 2005 , pp. 821 - 836
Copyright
2005 Cambridge University Press

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Footnotes

This paper was written while the first author was visiting the Department of Economics/CSERGE, University College London. Both authors wish to thank Jerome Adda and two anonymous referees for helpful comments and discussions. The usual disclaimer applies.