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Dynamic Model for the Simulation of Equilibrium Status in the Land Use Market

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  • Francisco Martínez
  • Ricardo Hurtubia

Abstract

This paper presents a dynamic equilibrium model for the real estate market. Households have stochastic behavior and compete for quasi-unique locations (real estate goods), which are assigned to the best bidder through an auction-type mechanism. The producers are modeled as maximizers of their profits over the long-term through the production of real estate assets, represented by the present value of future sales. It is assumed that the producers do not possess complete information about future levels of demand or prices. Rather, it is assumed that producers are myopic, meaning that they take the actual and historic prices in each period as the relevant information for their decision-making. A notion of equilibrium is used that adjusts prices given two situations: supply and demand surplus. In the supply surplus case, the prices are diminished and supply in the market is reduced until supply equals demand. In the case of demand surplus, the prices rise and demand diminishes (homeless households) until demand equals supply. This equilibrium condition yields prices that are jumpy over time, resembling observations of inventories in the real estate market and the manufacture industry. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Francisco Martínez & Ricardo Hurtubia, 2006. "Dynamic Model for the Simulation of Equilibrium Status in the Land Use Market," Networks and Spatial Economics, Springer, vol. 6(1), pages 55-73, March.
    • Handle: RePEc:kap:netspa:v:6:y:2006:i:1:p:55-73
    DOI: 10.1007/s11067-006-7685-4
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    References listed on IDEAS

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    1. Cantillo, Víctor & Ortúzar, Juan de Dios, 2005. "A semi-compensatory discrete choice model with explicit attribute thresholds of perception," Transportation Research Part B: Methodological, Elsevier, vol. 39(7), pages 641-657, August.
    2. Caballero, Ricardo J & Engel, Eduardo M R A, 1991. "Dynamic (S, s) Economies," Econometrica, Econometric Society, vol. 59(6), pages 1659-1686, November.
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    Cited by:

    1. Marisol Castro & Francisco Martínez & Marcela Munizaga, 2013. "Estimation of a constrained multinomial logit model," Transportation, Springer, vol. 40(3), pages 563-581, May.
    2. André DE PALMA & Stefan PROOST & Saskia VAN DER LOO, 2013. "A small model of equilibrium mechanisms in a city," Working Papers of Department of Economics, Leuven ces13.12, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    3. Martínez, Francisco & Aguila, Felipe & Hurtubia, Ricardo, 2009. "The constrained multinomial logit: A semi-compensatory choice model," Transportation Research Part B: Methodological, Elsevier, vol. 43(3), pages 365-377, March.
    4. David Simmonds & Paul Waddell & Michael Wegener, 2013. "Equilibrium versus Dynamics in Urban Modelling," Environment and Planning B, , vol. 40(6), pages 1051-1070, December.
    5. Martínez, Francisco J. & Henríquez, Rodrigo, 2007. "A random bidding and supply land use equilibrium model," Transportation Research Part B: Methodological, Elsevier, vol. 41(6), pages 632-651, July.
    6. Bravo, Mario & Briceño, Luis & Cominetti, Roberto & Cortés, Cristián E. & Martínez, Francisco, 2010. "An integrated behavioral model of the land-use and transport systems with network congestion and location externalities," Transportation Research Part B: Methodological, Elsevier, vol. 44(4), pages 584-596, May.

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