Question

Q2: Using data from 1988 for houses sold in Andover, Massachusetts, from Kiel and McClain (1995), the following equation relates housing price (price) to the distance from a recently built garbage incinerator (distance):

log(price) = 9.40 + .312log(distance)

n = 135 R²=.162

A) Interpret the coefficient on log(distance). Is the sign of this estimate what you expect it to be?

B) What other factors about a house affect its price? Might these be correlated with distance from the incinerator?

Answer 1

A) The sign should be positive. The further the house is from the garbage incinerator the greater the price should be ideally. The coefficient of log distance should thus be positive and this is the expected sign.

B) House prices maybe effected by the quality of neighbourhood - that is is it homely enough or not, the distance of the neighbourhood from major working hubs, supermarkets. How close is the house to the nearest hospital. All these factors will effect the price of the house. The further away it is to the above the greater the price should be. These are also related to the distance form the incinerator in the sense hospitals,supermarkets and working hubs would all want to be away from the garbage incinerator ideally. So they are all in a sense inter related.