Hedonic Amenity Valuation and Functional Form Specification.

In this article we examine the general problem of choosing ii functional form for hedonic pricing models and develop a flexible functional form for amenity valuation using a generalized Box-Cox (1964) transformation. The flexible form approach leads to amenity value estimates with no prior restrictions on the hedonic relationship and permits likelihood ratio tests of more traditional functional forms. The consequences of restrictions on functional form are examined with the results from an hedonic analysis of water-related amenities. The paper proceeds as follows: first, the Rosen implicit market model is reviewed with primary consideration to functional form specification for amenity valuation; second, the Box-Cox functional form is described and its usefulness evaluated using maximum likelihood estimation, likelihood ratio tests, and the resulting amenity values from alternative functional forms; and, finally, the research and policy implications of functional form specification for amenity valuation are considered. [ABSTRACT FROM AUTHOR]