Hedonic Model with Discrete Consumer Heterogeneity and Horizontal Differentiated Housing

This paper investigates how the hedonic equilibrium is modified when discrete consumer heterogeneity with horizontal differentiated housing supply is assumed. Our results are threefold. First, discrete consumer heterogeneity leads to a segmentation of the hedonic price function at equilibrium and the discontinuity of the implicit price of environmental quality on the borders of the segments. Second, we demonstrate that horizontal differentiation may lead to a partial sorting of consumer demand for housing attributes at hedonic equilibrium. Finally, we show that the discrete consumer heterogeneity with horizontal differentiation can lead to modification of welfare assessment related to changes in environmental quality.