There are two stages to the hedonic property valuation model.
The first stage involves estimating the hedonic price function
where the price of a residential property is regressed on its
characteristics to determine the value consumers place on the
characteristics that comprise the differentiated good (Feenberg
and Mills, 1980).1 Thus for an environmental hedonic model
the first stage of the model estimates the marginal implicit prices of the specific environmental characteristic, which can
then be used as the price variable in the second stage to
estimate the demand equation for the characteristic. See
Freeman (2003) for details of the hedonic property valuation
model for environmental goods. This research includes a stage
one analysis whereby measures of ambient water quality along
with other structural and neighborhood characteristics are
used to estimate marginal implicit prices (MIPs).