An Estimate of a Structural Hedonic Price Model of the Housing Market: An Application of Rosen's Theory of Implicit Markets

A simultaneous equations model of bid and offer functions for housing attributes (dwelling quality, dwelling size, and lot size) is estimated in order to account for the heterogeneity of the housing good. Estimation of a traditional, nonlinear hedonic price equation in the first stage provides a basis for calculating implicit prices for housing attributes which are used in the second stage simultaneous equations model. Empirical results confirm the theoretically expected negative coefficient for each attribute in its own bid function and the expected positive or zero coefficient for each attribute in its own offer function. Cross price relationships reveal a general pattern of complementarity in consumption of housing attributes.