The interpretation of capitalized hedonic prices in a dynamic environment

This paper considers the biases in hedonic price estimates of environmental variables. It is shown that using the current values of such variables can seriously bias the measure of the true effect of that variable when the future is changing. Although the bias can be in either direction most plausible examples considered show that we tend to underestimate such prices. A discussion of the relation between rental and capital value of hedonic prices follows from the distinction between present and future levels of environmental effects.