EXERCISE #1
Exercise. A new industrial complex will increase air pollution in 0.1 pp10m of NOx in a region of 100 thousand dwellings, and remain permanently at the new level. Estimate this externality according to the data provided
Data. In [original (with variables explanation], [excel] and [Limdep] format
Solution. -17.7666112 107 dollars of the year the data were collected, if all the variables were used in the regression analysis
First additional question. And if NOx entered the regression analysis in a non-linear form, e.g. as NOx squared?
Second additional question. If the figure was to enter the CBA matrix of an industrial complex with a similar environmental cost, how would it do so? (concisely justify): (1a) as a one time figure, (1b) the whole figure every year, or (1c) the corresponding annuity every year?; (2a) it would enter at (or since) the year of the hedonic price study, (2b) the year of the CBA study, (2c) the base year, or (2d) the first year pollution occurs?; (3a) in nominal terms, i.e. with no inflation adjustment, (3b) in real terms, i.e. adjusted by inflation, from the year of the hedonic price study to the year it enters the CBA, or (3c) in real terms, i.e. adjusted by inflation, from the year of the hedonic price study to the CBA base year, independently of the year it enters the CBA matrix?; (4a) in undiscounted terms (4b) in discounted terms from the year of the hedonic price study to the year it enters the CBA, or (4c) in discounted terms from the year of the hedonic price study to the CBA base year, independently of the year it enters the CBA matrix?
SOFTWARE
- NLogit-Limdep (free student version and manuals [broken link])
REFERENCES
- Rosen, Sherwin (1974) "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition." Journal of Political Economy, 82: 34-55.
Riera, Pere, Abir Mhawej, Robert Mavsar, and Raúl Brey. "Fixed-Effects Hedonic Price Model for Statistical Value of Live Estimations." Transport Reviews 26, no. 4 (July 2006): 487-500.