hedonic pricing: a standalone construct

Frederick V. Waugh's 1928 study of vegetable prices was among the earliest to break a good's price into the values buyers place on its measurable quality traits, and Andrew T. Court in 1939 named this approach hedonic while building price indexes for automobiles from their features. Sherwin Rosen's 1974 article gave the method its modern theoretical foundation, showing how, in a competitive market, the price of a differentiated good equals the sum of the implicit prices that buyers and sellers assign to each of its characteristics, so that a regression of price on attributes recovers those hidden marginal values. In plain terms, hedonic pricing treats a car, a house, or a bottle of wine as a bundle of traits and estimates what each trait is worth by comparing prices across many otherwise similar goods. What makes it a landmark is that it can value attributes that are never sold on their own, such as a home's distance from a park or a neighborhood's air quality, and it underlies quality adjustment in official price indexes as well as much of environmental and real-estate valuation.[1][2][3]

Unit

An implicit, marginal price for each attribute, expressed in the units of the good's price

Recovery means

Not applicable

Measured by

Estimated by regressing the observed prices of a good on its measured characteristics; each coefficient gives that attribute's implicit price