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Baltagi article on hedonic housing prices in Paris published in Journal of Applied Econometrics

Mar 31, 2015

Hedonic Housing Prices in Paris: An Unbalanced Spatial Lag Pseudo-Panel Model with Nested Random Effects

Badi H. Baltagi, Georges Bresson & Jean-Michel Etienne

Journal of Applied Econometrics, March 2015

Badi H. Baltagi

Badi H. Baltagi

This paper estimates a hedonic housing model based on flats sold in the city of Paris over the period 1990–2003. This is done using maximum likelihood estimation, taking into account the nested structure of the data. Paris is historically divided into 20 arrondissements, each divided into four quartiers (quarters), which in turn contain between 15 and 169 blocks (îlot, in French) per quartier. This is an unbalanced pseudo‒panel data containing 156,896 transactions. Despite the richness of the data, many neighborhood characteristics are not observed, and the authors attempt to capture these neighborhood spillover effects using a spatial lag model. Using likelihood ratio tests, they find significant spatial lag effects as well as significant nested random error effects. The empirical results show that the hedonic housing estimates and the corresponding marginal effects are affected by taking into account the nested aspects of the Paris housing data as well as the spatial neighborhood effects.