Hedonic Price Function

Abstract

The hedonic price function is the equilibrium mapping from points in the characteristics space of a heterogeneous good to transaction prices, formed as the envelope of buyer bid functions and seller offer functions in a competitive market. This third entry in the Foundations department of The Valuation Engineer situates the function as the central theoretical object of hedonic analysis: implicit prices are its partial derivatives, hedonic regression is its empirical estimate, and every defensibility question in sales-comparison adjustment reduces to a claim about it. A simple additive functional form is introduced and applied to the issue's running eight-comp Pacifica dataset, with estimated parameters to be exercised more fully in the entries that follow.