Thursday, April 29, 2010

Peace, love, house prices

Many people estimate hedonic models of house prices. Explanatory variables usually include characteristics of the house like size, the number of bedrooms or proximity to amenities - a recent Australian study looked at the effect of proximity to brothels. A new IFS paper looks at the effect of killings in Northern Ireland on house prices.

Estimating the peace dividend: the impact of violence on house prices in Northern Ireland
Tim Besley, Hannes Mueller
This paper exploits data on the pattern of violence across regions and over time to estimate the impact of the peace process in Northern Ireland on house prices. We begin with a linear model that estimates the average treatment effect of a conflict-related killing on house prices .showing a negative correlation between house prices and killings. We then develop an approach based on an economic model where the parameters of the statistical process are estimated for a Markov switching model where conflict and peace are treated as a latent state. From this, we are able to construct a measure of the discounted number of killings which is updated in the light of actual killings. This model naturally suggests a heterogeneous effect of killings across space and time which we use to generate estimates of the peace dividend. The economic model suggests a somewhat different pattern of estimates to the linear model. We also show that there is some evidence of spillover effects of violence in adjacent regions.

No comments: