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Hedonic pricing with redevelopment options: A new approach to estimating depreciation effects

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  • Clapp, John M.
  • Salavei, Katsiaryna

Abstract

The standard hedonic model of durable assets is a special case of a more general model that contains two additive terms: (1) use value of the existing hedonic vector and (2) the value of the option to reconfigure hedonic characteristics. One empirical implication is that the two parts of value are related: e.g., use value increases with interior area whereas option value decreases with "intensity," the ratio of structure value divided by land value. Increases in building age reduce use value but increase option value. Data from Greenwich Connecticut indicate that intensity has the expected negative effect. Coefficients on building age are shown to be better measures of depreciation when intensity variables are included in the regression.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 67 (2010)
Issue (Month): 3 (May)
Pages: 362-377

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Handle: RePEc:eee:juecon:v:67:y:2010:i:3:p:362-377

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Real options Hedonic pricing Housing Redevelopment Tear downs Depreciation;

References

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Citations

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Cited by:
  1. Robert A. Simons & Ron Throupe, 2012. "Debundling Property Rights for Contaminated Properties: Valuing the Opportunity Cost of the Right to Sell, Using Cumulative Options," International Real Estate Review, Asian Real Estate Society, vol. 15(2), pages 231-252.
  2. Clapp, John M. & Bardos, Katsiaryna Salavei & Wong, S.K., 2012. "Empirical estimation of the option premium for residential redevelopment," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 240-256.
  3. Liao, Wen-Chi & Wang, Xizhu, 2012. "Hedonic house prices and spatial quantile regression," Journal of Housing Economics, Elsevier, vol. 21(1), pages 16-27.
  4. Coulson, N. Edward & Li, Herman, 2013. "Measuring the external benefits of homeownership," Journal of Urban Economics, Elsevier, vol. 77(C), pages 57-67.
  5. Clapp, John M. & Eichholtz, Piet & Lindenthal, Thies, 2013. "Real option value over a housing market cycle," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 862-874.
  6. Samuel Dastrup & Joshua S. Graff Zivin & Dora L. Costa & Matthew E. Kahn, 2011. "Understanding the Solar Home Price Premium: Electricity Generation and “Green” Social Status," NBER Working Papers 17200, National Bureau of Economic Research, Inc.

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