Hedonic pricing
Topic: Environment and Sustainable Development · NCERT: Beyond NCERT
Meaning
Hedonic pricing puts a money value on environmental qualities by looking at how they change market prices, usually house prices. Two houses may be alike in size and location but differ in air quality or noise. The price gap shows how much buyers value the environmental difference. It is a revealed preference method, because it uses what people actually pay, not what they say.
Example
Suppose similar flats near a quiet green park sell for more than flats next to a polluted highway. The extra price can be read as what buyers are willing to pay for cleaner air and greenery.
Don't confuse with
- Contingent valuation: this is a stated preference method. It asks people in surveys what they would pay, instead of reading it from real prices.
- Travel-cost method: this values a park or site from what visitors spend to reach it, not from property prices.
Related concepts
- Natural capital
- Ecosystem services
- Total economic value
- Contingent valuation
- Payment for ecosystem services
- Green accounting
- Adjusted net savings
- Ecological footprint
- Earth Overshoot Day
- Carbon footprint