Term Paper – 2015

1. Term Paper – 2015 ECO 5520/5930/6520/Honors

2. It’s early, but … • Several have asked. • Deliverable is due Monday, March 30. • Paper is due Wednesday, April 22.

3. Housing – Why is it Different? Why? Housing is heterogeneous Housing is immobile Housing is durable Housing is expensive Moving costs are high Neighborhood comes with housing … and it matters! 3

4. Heterogeneous? Dwellings differ in: house size (sq. feet) lot size (sq. feet) configuration quality People seem to value these qualities differently. 4

5. Immobile? It is where it is. Where you buy it, you get: Accessibility (to good and bad things) Package of local public services Environmental quality Further You can’t (really) “move” houses You can’t rebundle them (use half of two different houses at the same time). 5

6. Price: The Hedonic Approach Hedonic approach looks at house as a bundle of components. Analogy: Suppose that when you went to the grocery store, all you could buy were “filled” shopping carts (food, soaps, etc.), and each one had a price. You know what’s in them, but you can’t take things out or put things in. 6

7. Price: The Hedonic Approach How do you figure out what the individual components are worth? A> If you had a large sample of carts, and each had different amounts of goods in them, then you could come up with the value of the individual components. 7

8. Example for Hedonic Prices Suppose that sq. feet of living space was ALL that mattered in the price of house. You collect data on lots of houses. Price Sq. feet 8

9. Example for Hedonic Prices What does this suggest? A> Bigger houses have more value. Let’s draw a line. ? Price ? Sq. feet 9

10. Example for Hedonic Prices Line has a form: Price = a + b*size slope = b Price • What does a mean? • What does b mean? a Sq. feet 10

11. Example for Hedonic Prices Says that for each additional sq. ft., house price is $b more. slope = b Price • Although it is hard to think of, we could draw this diagram in n dimensions! a b is the hedonic price of house size. Sq. feet 11

12. n dimensions? Let’s look at a house with 2000 sq.ft., 5 rooms for $75,000 100 75 Price Let’s look at a house with 3000 sq.ft., 6 rooms for $100,000 2000 3000 Sq. feet Rooms 5 6 12 Line has a form: Price = a + b*size + c*rooms

13. Your Task • Use this analysis to say something about taxes and what they buy. • We have over 125,000 housing transactions for Ohio for 1999. • They have • House variables • Neighborhood variables • Tax variables

14. Hypotheses • Let’s look at the value of a house. • All else equal, what do you think will be the impact of better services? • All else equal, what do you think will be the impact of higher taxes?

15. Here is an example !!! • Dependent variable is log of the transactions price • When we write Log P = b0 + b1X1 + b2X2 + e The coefficient of X is the percentage change in P brought about by a one unit change in X.

16. Here is an example One mill is equivalent to one-tenth of a cent or $0.001.

17. Here is an example

18. Here is an example

19. How well does it fit? Root MSE 0.3298 Dependent Mean 11.6561 R-Square 0.6407 Adj R-Sq 0.6407 Coeff Var 2.8297

20. But … • I’m sure you can do better than that.

21. Topic: Data-based Finance Analysis I am creating a file for your use. You will create hypotheses and test them.

22. Topic: Data-based Health Analysis Student will form null hypotheses. Test them using appropriate data analysis. Write up findings in a format to be provided by professor.

23. Specifics ECO 5520 – No less than 10 pages; no less than 5 references from scholarly journals. ECO 5930/6520 – No less than 15 pages; no less than 10 references from scholarly journals. Wikipedia is not a scholarly journal. Fisher is not a scholarly journal.