The Choice of Functional Form and Variables in the Hedonic Price Model in Seoul

Abstract

This study demonstrates that the important part of exploring the proper functional form of the hedonic price model would include investigating a dissimilar and unique hedonic price structure when the hedonic price model is applied to different housing markets. Based on the adjustment to the usual technique necessitated by the regional and cultural setting of Seoul, the criteria for significance of implicit price, root-mean-square-percentage-error, and the log-likelihood ratio test are applied to the choice of a useful functional form. We conclude that investigating the structure of a local housing market and choosing proper variables reflecting regional and cultural characteristics, both key parts of such a study, require significant adjustment to the reality of Seoul.