Abstract
This paper contributes to the literature on hedonic models in two ways. First, it makes use of Queyranne’s reformulation of a hedonic model in the discrete case as a network flow problem in order to provide a proof of existence and integrality of a hedonic equilibrium and efficient computation of hedonic prices. Second, elaborating on entropic methods developed in Galichon and Salanié (Cupid’s invisible hand: social surplus and identification in matching models. Working Paper, 2014), this paper proposes a new identification strategy for hedonic models in a single market. This methodology allows one to introduce heterogeneities in both consumers’ and producers’ attributes and to recover producers’ profits and consumers’ utilities based on the observation of production and consumption patterns and the set of hedonic prices.
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Notes
We are confident Ivar will approve of this choice of example.
Note that in this setup, the utility of agents on each side of the market does not depend directly on the type of the agent with whom they match, only through the type of the contract. A more general framework where \(\alpha \) and \(\gamma \) depend simultaneously on \(x\), \(y\) and \(z\) is investigated in [9].
The node-edge matrix is usually denoted \(A\); our notations \(\nabla ^{*}\) and terminology are chosen to stress the analogy with the corresponding differential operators in the continuous case.
In most physical systems, mass is conserved and the balance equation has the more usual form of Kirchoff’s law \(\nabla ^{*}\mu =N\). However, in the present setting, producers and consumers have an option not to participate in the market, hence \(\nabla ^{*}\mu =N\) is replaced by Eqs. (2.11)–(2.13).
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Acknowledgments
Galichon’s research has received funding from the European Research Council under the European Union’s Seventh Framework Programme (FP7/2007-2013)/ERC Grant Agreement No. 313699, and from FiME, Laboratoire de Finance des Marchés de l’Energie. Henry’s research is supported by SSHRC Grant 435-2013-0292 and NSERC Grant 356491-2013. This paper has benefited from insightful conversations with Ivar Ekeland and Bernard Salanié. We would like to thank an anonymous referee for comments on an earlier version of the paper.
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Dedicated to Ivar Ekeland on his 70th birthday.
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Dupuy, A., Galichon, A. & Henry, M. Entropy methods for identifying hedonic models. Math Finan Econ 8, 405–416 (2014). https://doi.org/10.1007/s11579-014-0125-1
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DOI: https://doi.org/10.1007/s11579-014-0125-1