Abstract
THE PAPER DESCRIBES THE APPLICATION OF A HEDONIC PRICE ANALYSIS TO AUTOMOBILE MARKET ACTIVITY WITH SPECIAL EMPHASIS ON THE VALUATION PLACED ON INCREASED MILEAGE PER GALLON (MPG). FOUR SETS OF HYPOTHESES ARE TESTED USING DATA FOR USED CARS SOLD IN 1977 AND 1979. IN THE EXAMPLES DISCUSSED, HOMOGENEITY OF COEFFICIENTS IS REJECTED OVER THE LAST TWO YEARS, AND IN ADDITION, LINEARITY OR LOG-LINEARITY OF REGRESSIONS IS ALSO REJECTED FOR EACH YEAR. COEFFICIENT VALUES IN THE 1977 MARKET ARE FOUND CONSISTENT WITH THEORY, BUT PROBLEMS ARISE IN 1979. WILLINGNESS TO PAY FOR INCREASED MPG WAS FOUND TO BE ELASTIC FOR THE 1977 MARKET WHICH IMPLIES THAT LINEAR PRICE COEFFICIENTS SIGNIFICANTLY OVERESTIMATE WILLINGNESS TO PAY FOR INCREASED MPG.