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HEDONIC APPROACHES TO ESTIMATING IMPACTS 21


which a subset of repeated observations between the surveys exist. The house- hold data are from a nationally representative multitopic household survey that sought information such as agricultural income, land and consumption expenditures, as well as some variables related to infrastructure and public services, such as travel time to the market, access to irrigation, and receipt of visits from an agricultural extension officer. The third set of data provides information on district-level conflict as measured by Maoist and government deaths by year, which were collected and compiled by the Informal Sector Service Centre in Nepal. The hedonic method and its results are described in this chapter, while the panel data approach is described in Chapter 5.


A Hedonic Approach


Jacoby (2000) suggested an innovative hedonic approach to measure the ben- efits of rural roads at the household level using the value of farmlands and their distance to agricultural markets. Because land is an asset whose value is the discounted stream of agricultural profits, land values should increase as their distance to markets decreases, a direct result of the installation of rural roads. This is because better roads and better access to roads decrease transportation costs, increasing agricultural profits. The same argument can be extended to access to irrigation and agricultural extension services. Better irrigation facilities and more frequent visits from extension agents increase yield and boost land productivity.


We extend Jacoby’s identification strategy in several ways. First, we include extension services as an additional determinant in our econometric specifica- tion. The effect of extension services on land values provides an estimate of the benefits of extension services. Second, Jacoby included canal and tube- well irrigation as land characteristics. Because both of these types of irriga- tion are financed by public expenditures, we create a new indicator variable that is the union of the tubewell and canal variables to permit an estimate of the overall effect of irrigation. Finally, we include in the 2003/04 speci- fication a conflict indicator that is the logarithm of the cumulative number of conflict-related killings at the district level. This controls for potential conflict-related impacts on our parameter estimates as suggested by other studies of the impact of conflict on household-level outcomes in Nepal, such as Murshed and Gates (2005), Do and Iyer (2009), and Macours (2009). Because the conflict had not escalated during the 1995/96 survey round, no conflict variable is included. Our modification of the Jacoby specification is as follows:


y = αK + βX + γD + ε, (4.1)


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