Diagrama de la elaboración de las pruebas

The relationship between the hedonic and LS approaches now may be dis- cussed, following the analysis of van Praag and Baarsma (2005)—the first authors to suggest the complementarity between the two methods.

For convenience, consider two individuals who are identical in all respects (including their incomes and their houses). These individuals live in neighborhoods that are very similar in all respects, except that one has green areas and one does not. If the assumptions of competitive housing markets and market mobility in the hedonic approach hold, housing rents in the neighborhood with green spaces should be higher by exactly the amount that compensates for the additional utility produced by having green areas. Consequently, the first individual (with green spaces in the neighborhood) should report the same level of satisfaction as the second individual because both have the same means and are free to move to the other neighborhood if they wish to do so. This finding implies that both would be placed on the same satisfaction indifference curve, but that their locations on that curve would differ: the first would be “consuming” more green areas (implicitly paying for them through higher rents) but spending less on other goods than the second. The level of satisfaction W thus can be represented as a function of income y and housing rents p, which depends on the existence of green areas in the neighborhood (denoted by z):

W(y,p(z); z). (3.6)

When the hedonic price assumptions hold, the satisfaction levels of the two representative individuals are necessarily equal:

Notice that, because rents differ between the two neighborhoods only as a result of access to green areas, equation (3.7) in reduced form is

W(y,z1) = W(y,z2), (3.8)

which implies that the same level of satisfaction will be perceived by the two individuals, irrespective of whether they have access to green areas! Therefore, when hedonic price assumptions hold, neighborhood features do not have any additional influence on satisfaction when income is controlled for. The intuitive reason is that the satisfaction derived from access to the green areas is captured already in the satisfaction derived from income, because access to the green areas implicitly is paid for in housing rents.

More often than not, however, neighborhood features such as green spaces, recreational areas, or safety conditions do have an influence on life satisfaction after controlling for income; that is,

W(y,z1) ≠ W(y,z2). (3.9)

Or, in other words, two individuals in identical circumstances and with equal income, but living in houses with different rents, may be at different levels of satisfaction. This inequality implies that the standard hedonic price assumptions do not always hold. In some cases, neighborhood fea- tures do not have any influence on housing rents. Access to cultural centers is such a case, according to some of the studies presented in this volume. In other cases, however, there may be some difference between rents in neigh- borhoods that have some feature—such as better security—and those that do not. This suggests that the housing market is frequently unable to achieve equilibrium: other things being constant, those people who live in safer neighborhoods manifest more life satisfaction, even though they may be paying rents that are higher because of that factor.

In that case, we cannot equalize the slope of the price curve with the subjective trade-off ratio. However, the trade-off ratio, derived from the estimated indifference curve discussed at the end of the previous section, can be used to calculate the compensation that would be required to equalize the satisfaction levels of the two groups of individuals. If one dimension in the satisfaction indifference map is income and the other is security, the subjective trade-off ratio −a1/a2 would be the ratio between the marginal utility (or satisfaction) of income and the (additional) mar- ginal utility of security (where the word additional refers to the fact that part of the utility already may be captured in the income coefficient, as explained above). The value of that ratio is the monetary compensation needed to equalize the satisfaction between individuals in more-secure (z1) and less-secure (z2) neighborhoods.

an urban quality of life index: theory and methods 75

Notice that this monetary compensation is additional to what individu- als in the more-secure neighborhood pay as extra rents, which is measured by the coefficient of the security variable in the hedonic price. Therefore, the total value of security or, in more technical terms, the total shadow cost of any neighborhood feature z is

(p(z1) − p(z2)) + Δy, (3.10)

where housing rent p depends on whether the neighborhood has the fea- ture z, and _{Δy is the monetary compensation obtained from the subjective} trade-off ratio of the LS approach.

As the previous discussion shows, the hedonic and LS approaches are complements. Taken separately and using only rather stringent assump- tions, neither approach provides an adequate measure of the value of neighborhood features. The hedonic approach requires that housing markets function perfectly for the feature in question. The LS approach estimates the residual shadow cost, if prices are not equilibrium prices; and, consequently, rent differences do not completely compensate for the differences between houses. The hedonic approach may be sufficient to value most of the characteristics of the dwellings—such as the number and sizes of rooms, the quality of floors, and the availability of some domiciliary services—because these are mostly private, excludable goods with competitive markets. By itself, the LS approach may be adequate to find the “value,”—that is, the equivalent income that would provide the same satisfaction—of things that money does not buy, such as trust in oth- ers or friendships (see Lora 2008, ch. 4). But most neighborhood features and amenities do not fall clearly into either the market or the nonmarket category. The reason is simply that housing markets may operate only to some extent as intermediate markets for access to such features as transportation, green areas or recreation places, safety, and quiet, among others. Therefore, it is left to empirical analysis to establish the market and nonmarket components of the values of neighborhood characteristics and amenities.

The hedonic and LS approaches may be considered further comple- mentary from a different angle that, although noteworthy, is not pursued empirically in this volume. It may be argued that discrepancies in the trade-offs obtained with the hedonic and happiness methods reflect the differences between ex ante and ex post evaluations, as related to dif- ferent concepts of utility introduced by Kahneman, Wakker, and Sarin (1997). Whereas the happiness approach reflects individuals’ evaluations after they have made a decision (ex post), the hedonic method reflects the decisions made at the time of the market transaction (ex ante). Because individuals mispredict (as a result of unexpected adaptation or cognitive dissonance, among other reasons), ex ante and ex post evaluations do not necessarily coincide. For example, individuals may underestimate

their capacity to adapt to local amenities. That underestimation, in turn, raises the fundamental and unsolved question, Which evaluations should policy makers take into account? To this point, no convincing answer has been given.