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Complements and Substitutes in Public Service Provision: A Two-Stage Hedonic Model for Demand for School Quality, Neighborhood Safety and Environmental Quality

Gandhi R Bhattarai, Diane Hite, David M Brasington

Abstract


A two-stage hedonic price and demand model was developed to estimate the willingness to pay for school quality, neighborhood safety and environmental quality in six Ohio metropolitan areas, USA. Marginal implicit prices were estimated for different characteristics in the first stage and demands for three public goods were jointly estimated in the second stage. The own price demand elasticity for all three characteristics were inelastic and ranged from –0.13 for school quality and –0.31 for environmental quality, to –0.87 for public safety. Cross price elasticity between environmental quality and neighborhood safety was –0.29, making them complementary to one another. Cross price elasticity between school quality and environmental quality was 3.66, indicating strong substitution effects. School quality and public safety were also substitutes with a cross price elasticity of 2.84.

Keywords


hedonic demand model, neighborhood safety, environmental quality, school quality

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