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Do “Capitalization Effects” For Public Goods Reveal The Public'S Willingness To Pay?

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  • Nicolai V. Kuminoff
  • Jaren C. Pope

Abstract

This article develops a welfare theoretic framework for interpreting evidence on the impacts of public programs on housing markets. We extend Rosen's hedonic model to explain how housing prices capitalize exogenous shocks to public goods and externalities. The model predicts that trading between heterogeneous buyers and sellers will drive a wedge between these “capitalization effects” and welfare changes. We test this hypothesis in the context of changes in measures of school quality in five metropolitan areas. Results from boundary discontinuity designs suggest that capitalization effects understate parents’ willingness to pay for public school improvements by as much as 75%.

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  • Nicolai V. Kuminoff & Jaren C. Pope, 2014. "Do “Capitalization Effects” For Public Goods Reveal The Public'S Willingness To Pay?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 1227-1250, November.
  • Handle: RePEc:wly:iecrev:v:55:y:2014:i::p:1227-1250
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    File URL: http://hdl.handle.net/10.1111/iere.12088
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    Cited by:

    1. Lucija Muehlenbachs & Elisheba Spiller & Christopher Timmins, 2015. "The Housing Market Impacts of Shale Gas Development," American Economic Review, American Economic Association, vol. 105(12), pages 3633-3659, December.
    2. Christian A. L. Hilber & Charles Palmer & Edward W. Pinchbeck, 2017. "The Energy Costs of Historic Preservation," SERC Discussion Papers 0217, Spatial Economics Research Centre, LSE.
    3. LeGower, Michael & Walsh, Randall, 2017. "Promise scholarship programs as place-making policy: Evidence from school enrollment and housing prices," Journal of Urban Economics, Elsevier, vol. 101(C), pages 74-89.
    4. David Albouy & Walter Graf & Ryan Kellogg & Hendrik Wolff, 2016. "Climate Amenities, Climate Change, and American Quality of Life," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, pages 205-246.
    5. repec:eee:ecolec:v:137:y:2017:i:c:p:184-194 is not listed on IDEAS
    6. Walsh, Patrick & Griffiths, Charles & Guignet, Dennis & Klemick, Heather, 2017. "Modeling the Property Price Impact of Water Quality in 14 Chesapeake Bay Counties," Ecological Economics, Elsevier, vol. 135(C), pages 103-113.
    7. repec:spr:anresc:v:60:y:2018:i:1:d:10.1007_s00168-017-0846-1 is not listed on IDEAS
    8. Zhang, Congwen & Boyle, Kevin J. & Kuminoff, Nicolai V., 2015. "Partial identification of amenity demand functions," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 180-197.
    9. Christian A. L. Hilber, 2017. "The Economic Implications of House Price Capitalization: A Synthesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(2), pages 301-339, April.
    10. repec:eee:juecon:v:99:y:2017:i:c:p:148-160 is not listed on IDEAS
    11. Lang, Corey, 2015. "The dynamics of house price responsiveness and locational sorting: Evidence from air quality changes," Regional Science and Urban Economics, Elsevier, vol. 52(C), pages 71-82.
    12. Pope, Devin G. & Pope, Jaren C. & Sydnor, Justin R., 2015. "Focal points and bargaining in housing markets," Games and Economic Behavior, Elsevier, vol. 93(C), pages 89-107.
    13. Janne Artell & Anni Huhtala, 2017. "What Are the Benefits of the Water Framework Directive? Lessons Learned for Policy Design from Preference Revelation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 847-873.
    14. Eriksen, Michael D. & Kniesner, Thomas J. & Rohlfs, Chris & Sullivan, Ryan, 2016. "Toward more general hedonic estimation: Clarifying the roles of alternative experimental designs with an application to a housing attribute," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 54-62.
    15. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, Elsevier.
    16. repec:eee:regeco:v:67:y:2017:i:c:p:78-89 is not listed on IDEAS
    17. Gibbons, Stephen, 2015. "Gone with the wind: Valuing the visual impacts of wind turbines through house prices," Journal of Environmental Economics and Management, Elsevier, vol. 72(C), pages 177-196.
    18. repec:kap:enreec:v:69:y:2018:i:1:d:10.1007_s10640-016-0065-8 is not listed on IDEAS
    19. repec:eee:jeeman:v:85:y:2017:i:c:p:62-80 is not listed on IDEAS
    20. Yinger, John, 2015. "Hedonic markets and sorting equilibria: Bid-function envelopes for public services and neighborhood amenities," Journal of Urban Economics, Elsevier, vol. 86(C), pages 9-25.
    21. Bruegge, Chris & Carrión-Flores, Carmen & Pope, Jaren C., 2016. "Does the housing market value energy efficient homes? Evidence from the energy star program," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 63-76.
    22. repec:oup:oxecpp:v:69:y:2017:i:4:p:918-938. is not listed on IDEAS

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