Effect of Environmental Service by Hedonic Pricing Model

Abstract

Environmental services refer to qualitative functions of natural non-produced assets of land, water and air (including related ecosystem) and their biota, which implies natural environment providing particular important uses or benefits that can be captured under the concept of “services.” Our objective is to analyze the benefits associated with such environmental services in order to make them more visible. The hedonic pricing method uses the value of a surrogate good or service to measure the implicit price of a non-market good. The basic idea of the hedonic pricing method is that the price of a market good is related to its characteristics or the services it provides rather than the good itself. This article focuses on assessing residential property rate influenced by environmental services by applying hedonic pricing model. It is most commonly applied to variations in housing prices that reflect the value of local environmental attributes. The paper defines Hedonic Pricing method (HPM) and its methodology. Data required that influences the residential property rates will be collected and are analyzed using regression analysis which relates to statistically estimate a function that relates property values to the property characteristics, including the distance to open space. Thus, the effects of different characteristics on price can be estimated. The results can be used to evaluate the variations of property rates for small change in characteristics holding all other characteristics constant. Price prediction model is than prepared.