Anthony Yezer – Institute for International Economic Policy (IIEP)

February 2022

Paul E. Carrillo and Anthony Yezer

IIEP working paper 2021-03

Abstract: This paper demonstrates theoretically and empirically that estimated implicit prices from hedonic equations using house value do not reflect implicit willingness to pay for housing attributes unless very strong conditions are present. The argument is simple. Implicit prices obtained from rental hedonics, consistent with theory, can potentially be used to reveal the willingness to pay for current housing services. Therefore hedonic equations relating asset prices to current characteristics only reveal willingness to pay for structure and neighborhood services if cap rates (rent to value ratios) are constant. In some cases, the sign of the bias inherent in using asset rather than rental prices can be anticipated. Some rules and tests for situations where cap rates are constant are developed. At a minimum some of these checks for variation in cap rates should be implemented before using asset price hedonics to measure the current flow of housing services.

Key Words: Hedonic models, implicit markets, capitalization rate, environmental valuation

August 2019

Remi Jedwab, Prakash Loungani, and Anthony Yezer

IIEP working paper 2019-11

Abstract: It is obvious that holding city population constant, differences in cities across the world are enormous. Urban giants in poor countries are not large using measures such as land area, interior space or value of output. These differences are easily reconciled mathematically as population is the product of land area, structure space per unit land (i.e., heights), and population per unit interior space (i.e., crowding). The first two are far larger in the cities of developed countries while the latter is larger for the cities of developing countries. In order to study sources of diversity among cities with similar population, we construct a version of the standard urban model (SUM) that yields the prediction that the elasticity of city size with respect to income could be similar within both developing countries and developed countries. However, differences in income and urban technology can explain the physical differences between the cities of developed countries and developing countries. Second, using a variety of newly merged data sets, the predictions of the SUM for similarities and differences of cities in developed and developing countries are tested. The findings suggest that population is a sufficient statistic to characterize city differences among cities within the same country, not across countries.

JEL Codes: R13; R14; R31; R41; R42; O18; O2; O33

Keywords: Urbanization; Cities; Urban Giants; Population; Standard Urban Model; Measurement; Urban Technology; Building Heights; Sprawl; Housing; Transportation

Category: Anthony Yezer

What Do Hedonic House Price Estimates Tell Us When CAP Rates Vary?

How Should We Measure City Size? Theory and Evidence Within and Across Rich and Poor Countries