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Measuring Land Use Benefits in Auction Markets

Measuring Land Use Benefits in Auction Markets. Francisco Martínez University of Chile European Transport Conference Cambrigde 2001. Economic context. The urban land market Multiple consumers: residents and firms Multiple location attributes Location externalities

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Measuring Land Use Benefits in Auction Markets

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  1. Measuring Land Use Benefits in Auction Markets Francisco Martínez University of Chile European Transport Conference Cambrigde 2001

  2. Economic context The urban land market • Multiple consumers: residents and firms • Multiple location attributes • Location externalities • A variety of zone-building options • Auction market: imperfect competition • Market equilibrium analysis Measures of benefits of land use changes • Regulations • Transport projects

  3. Modelling Consumers’ behaviour Indirect & conditional utility p: exogenous price for z yieldingU Max value for z to achieve U Compensated demand Expenditure funtion

  4. Auction markets:linear marginal utility of income Location prices are endogenous: highest bid Def. auction equilibrium : Theorem 1: Thus for More...

  5. Proof: From Roy’s theorem and demand =1: In E: Variation in U: Variation in z:

  6. Interpretation Theorem 1: Since: • in the auction market prices are always the WP for the final consumer • for two identical consumers in (I,), these endogenous prices are different at different sites, but utility is the same Then, such prices HAVE to comply with theorem 1; other prices do not.

  7. Consumers’ WP function Theorem 2: within E, WP is doubly linear, in I and U Follows from comsumption of one unit and Roy’s Theorem under Theorem 1 then

  8. Measuring consumers’ surplus The classical measures: for (p,z,U) at equilibrium Notice U1 p=WP

  9. Measuring total benefits For a given location: Total Benefit = Consumers’ + Producers’ surplus Change in WP caused by changes in built environment Obs.: 1) extenal conditions 2) location externalities, agents interacction

  10. Summary Urban market characteristics: One location.......WP linear in I + Auction market....WP linear in U • WP is doubly linear • Income variation EV=CV=CS • Total benefits measurable from WP values

  11. Some implications Total benefits are • change in WP valued at constant U, or • change in U plus change in rents, or • change in consumers value of built environment. They are NOT equal to change in rents

  12. Application: building & land supply consumers clusters Logit auction model (short term) Auction best bid rule zvi All agents are allocated bh

  13. Land use benefits Consumers’ surplus Producers’ surplus

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