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A house is a bundle of many goods: The number of bedrooms, bathrooms, the quality of local public services, the tidiness of a neighbor’s yard, and the quality of the local environment. If transactions in the housing market reflect the interaction of informed buyers and sellers, then the price that the house sells for is the sum of the prices the buyer is willing to pay for each individual characteristic of the house. It is this notion that motivates environmental economists to study property values. If individuals consider the local environment as a component of the house they purchase, then information on the house and its sales price allows researchers to ‘tease out’ the price that individuals would be willing to pay for environmental goods. This approach relies on the use of the hedonic price model.

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