Entropy methods for identifying hedonic models

TL;DR

This paper introduces a novel approach to identify hedonic models using entropy methods, leveraging network flow reformulations for existence, computation, and a new strategy to recover consumer and producer utilities.

Contribution

It combines network flow reformulation with entropic methods to provide a new identification strategy for hedonic models, accommodating heterogeneity in attributes.

Findings

Proves existence and integrality of hedonic equilibrium.

Develops an efficient computational method for hedonic prices.

Introduces a new identification strategy for consumer and producer utilities.

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 Salani\'{e} (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.