Uncertainty, Information, and Hedonic Pricing

The application of the hedonic pricing technique to estimating consumer values of avoiding or incurring the risk of loss from natural hazards has recently appeared in the literature (e.g., Brookshire et al. 1985; MacDonald, Murdoch, and White 1987). The probabilistic nature of the hazards evaluated in these studies raise new questions regarding the interpretation of the hedonic prices estimated. We present a hedonic price model that accounts for information level and uncertainty when valuing nonmarket goods. A simple set of rules are derived for analyzing hedonic prices for probabilistic nonmarket goods.