Hedonic pricing method

The revealed preference method is an indirect approach that is used in order to monetize use values. This method observes the real choice between money and the environmental goods. Methods often include observations of consumers or producers behaviour or actions, such as the hedonic price method and the production function method. The hedonic price method determines values from actual market transactions. These transactions are used to see how the price of a market commodity varies when a related environmental good changes, such as the effects of noise or air pollution on house prices. The production function method is used to estimate the value of the environmental effects on production. This method is suitable when consumption or production of a private good is affected by the environmental good. An example is the valuation of ground-level ozone levels by valuing the impact on the production of wheat or timber, which has market prices. The problem with the revealed preference method is that it does not contain all the individuals values that affect the WTP. 

Another approach used in economic valuation is the hedonic pricing method. By this approach, economic valuation is obtained through estimating the direct effect of environmental impacts on market prices, usually housing prices. The hedonic pricing method is often used to estimate the economic value of more intangible damages due to air pollution, such as reduced visibility and aesthetics. 

Over the past half century, the held of economics has developed a rich and extensive literature that advances the theory and methodology of estimating values associated with the myriad unmarketed yet economically valuable benefits provided by nature. While the literature is vast, the number of approaches available to estimate the economic value of ecosystem services remains limited to only a handful, each with its own strengths and weaknesses (for comprehensive reviews, see Mitchell and Carson, 1989 Freeman, 1993 Smith, 2000 Mathis et al., 2003). These include replacement costs and avoided costs analysis, factor income analysis, hedonic pricing, contingent valuation, and travel costs analysis. A discussion of these approaches follows later in this section. Although there is often considerable debate about the methods used and the accuracy of the values derived, there is little doubt that the unpriced economic value of ecosystem services is enormous.9... 

Griliches, Z. (1971). Introduction hedonic price indexes revisited. In Price Indexes and Quality Change Studies in New Methods of Measurement, ed. Z. GrUiches, pp. 3-15. Harvard University Press, Cambridge, MA. 

The SLCC may also include externalities or external costs as defined by environmental economics and external costs which are usually borne by society as shown in Fig. 2. Such costs can be assessed using the preference theory of economic valuatirMi methods (e.g., hedonic pricing and contingent valuation) that are based on the market and nonmarket values (e.g., the willingness-to-pay survey) (Rebitzer and Hunkeler 2003). 

Method The authors use information on all non-hospital sales of pharmaceutical products in 1992 in a sample of countries consisting of the USA, Canada, Germany, France, Italy, Japan and the UK. The database was provided by Intercontinental Medical Systems (IMS). The empirical analysis is based on the calculation of the Paasche and Laspeyres price indexes and the ratio between them. The descriptive analysis is completed with the econometric analysis (quasi-hedonic model) of the determining factors of the variation in the relative prices of each active ingredient in each country taking the USA as the point of comparison. 

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