rivista italiana di economia demografia e statistica - Sieds

56
Volume LXIII nn. 3-4 – Luglio-Dicembre 2009
price than the market one, or even provided for free. IR has to be estimated only for
those dwellings used as main residence by the household. There are several ways to
calculate IR at a microdata level by the use of sample surveys.
The capital market approach is based on an hypothetic alternative use of capital
spent to own the dwelling. Operationally, it consists in estimating the current market
value of the dwelling - as it were to be sold - and then applying a standard return rate to
this value. The most relevant drawbacks are the determination of the value of the
dwellings and the selection of the return rate; moreover, it is not applicable for
households that do not own the dwellings they are living in.
The rental equivalence value, also called opportunity cost method, defines and
calculates IR as the opportunity cost of renting a house at the market price. By
referring to the rental market instead of the capital one, this method allows the
estimation of IR for all the potential beneficiaries, such as owners and free tenants or
tenants paying a lower price than the market one. This approach may be implemented
in different ways. With the self-assessment method, owner-occupiers are asked to
evaluate on their own the potential market rent of dwellings. Even if it is the easiest
way to calculate IR, the main drawback consists in the subjective nature of the
evaluation, that depends on the degree of knowledge of the rental market by the
respondents. By using stratification method, instead, the dwellings are allocated in
strata as homogenous as possible in respect of the characteristics of dwellings. The
mean (or median) full rent paid for houses in a stratum is then considered as the IR for
households with similar dwellings. Alternatively the regression method may be used.
One may include information on the dwelling, as well as socio-economic
characteristics of the household. Otherwise, it may be the case for an hedonic
regression: according to Rosen (1974), paid rents are interpreted as equilibrium
composite prices whose determination is function only of the dwelling characteristics,
each evaluated in a perfect market. Regression coefficients represent the elasticities of
the good prices to its characteristics.
3. The model
In this work we adhere to the hedonic approach. Socio-economic characteristics are
taken into account to check and eventually correct for preventing biases due to a
sample selection problem: this one might occur when the full market tenants are
systematically different from the rest of the population, both in observable or
unobservable characteristics. A popular method to cope with selection bias is the
Heckman (1979) two steps procedure. We apply it separately for each subpopulation.
This choice should prevent from considering owners, non-market tenants and free
accommodation households as a unique and homogeneous set. In other words, the three
groups for which IR has to be computed may differ from full rent tenants as well as
from each other and we want to consider all of these potential distinctions. In our