A NOTE ON THE ESTIMATION OF CAPITALIZATION

Several authors have applied the hedonic model using before-after data to estimate the willingness to play for a change in public expenditur e or amenity. This article shows that attempts to interpret the result s of such estimation as a measure of willingness to pay for a local am enity or public expenditure in this case are flawed. The implicit basi s for such estimation is a single-jurisdiction partial equilibrium mod el, whereas the underlying Tiebout model is multijurisdictional and ge neral equilibrium. It is argued that the results of such estimations i ncorporate biases, the direction and magnitude of which cannot be pred icted. If service-tax packages are exogenous, then the hedonic model u sing before-after data will likely provide incorrect estimates of the willingness to pay.