Measurement of living environment value of forest : An application of the hedonic method

Abstract

This paper explains the hedonic method and reports our empirical research in which we applied this method to forests. Under some conditions, we were able to interpret the gradients of a hedonic equation regarding housing land prices as the marginal willingness to pay for characteristics of the living environment. Therefore it is possible to term the partial derivatives regarding a forest as the living environment values of a forest. Our research used a hedonic equation of quadratic form. One of the independent variables is the forested area around a housing lot. Most of the signs of the estimated parameters were consistent with those expected. Using this estimated equation, we computed the living environment value of forests in a certain area. As regards some forests, the value was extremely large when compared with the value based on forestry, whereas it did not seem so high when compared with the value of a forest being turned into housing lots. The paper also points out some problems involved with the hedonic method. We showed that the hedonic prices as equilibrium prices might be indeterminate when transaction costs such as moving expenses are introduced into SCOTCHMER'S model. We also discussed the fact that the estimated hedonic equation usually ignores some variables related to an individuals' perspective on the change of living environment. Our conclusion is that we should be careful when interpreting and/or using the estimated hedonic equation.