The Amenity Value of the Italian Climate

The hedonic price literature suggests that locations with more favourable characteristics should display compensating wage and house price differentials. Estimates of the marginal willingness to pay for small changes in climate variables are derived using the hedonic price technique applied to Italian data. A hedonic price model was specified in terms of January and July averages. There exists considerable empirical support for the hypothesis that amenity values for climate are embedded in the labour and housing market. Italians would prefer a drier climate during the winter months, but higher summertime temperatures are shown to reduce welfare. These results may have relevance to the task of determining the economic impact of future climate change.