When Do Habits Matter? The Empirical Content of Dynamic Hedonic Models

Hedonic models value goods through their characteristics but are typically interpreted under time-separable preferences. This assumption is restrictive: when some attributes are habit forming, observed prices reflect both contemporaneous utility and continuation values from past consumption. I develop a nonparametric revealed preference framework for dynamic hedonic valuation, deriving necessary and sufficient conditions for rationalisability over characteristics. The framework separates restrictions imposed by the hedonic price system from those imposed by intertemporal choice and provides diagnostics that quantify the severity of violations along each margin. Applied to household scanner data, I show that most failures of static hedonic valuation reflect violations of the hedonic price structure; conditional on satisfying this structure, allowing for habit formation improves behavioural fit. This alters the mapping from prices to willingness-to-pay and the implied welfare interpretation.