Entrepreneurial Land Developers: Joint Production, Local Externalities, and Mixed Housing
AbstractHousing developments (condos and suburban developments) are not necessarily homogeneous. Developers provide different types of units with various sizes and other characteristics catering to different types of customers. In this paper, we allow local consumption externalities within each development: some consumers would be happy to pay high prices for the most prestigious units in the development, while some are happy to have modest units as long as the prices are low. We consider land developers who seek the optimal mix of units in developments to maximize their profits. We show that there exists an equilibrium, and that every equilibrium is Pareto efficient as long as consumers and developers are optimistic in a certain sense. We provide examples in which mixed developments are more profitable to the developers. We relate this work to widely used hedonic pricing model by Rosen (1974), and to an equilibrium concept under asymmetric information by Rothschild and Stiglitz (1976).
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 777.
Date of creation: 26 Aug 2011
Date of revision: 06 Apr 2013
Publication status: published, Journal of Urban Economics, 75, 68-79, 2013
Note: previously circulated as "Entrepreneurial Land Developers: Local Externalities and Mixed Housing Developments"
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land developers; mixed development; joint production; consumption externalities; efficiency; equilibrium; entrepreneurship; hedonic pricing;
Find related papers by JEL classification:
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
- R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
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