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Confronting Price Endogeneity in a Duration Model of Residential Subdivision Development

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  • Douglas H. Wrenn
  • H. Allen Klaiber
  • David A. Newburn

Abstract

Spatial equilibrium implies that distant factors are correlated with local prices through market mechanisms. Using this logic, we develop a novel approach for handling price endogeneity in land use models. We combine a control function approach with a duration model to identify the impact of prices in influencing land conversion. We find that failure to control for endogeneity results in large differences in elasticities. Specifically, we find an elasticity of 2.06 compared to 0.67 in a model without instrumentation. This difference is significant as it suggests that price‐based policies, such as ‘green taxes’, are likely more effective in altering development patterns than would be expected from a naïve estimation that ignores price endogeneity. Copyright © 2016 John Wiley & Sons, Ltd.

Suggested Citation

  • Douglas H. Wrenn & H. Allen Klaiber & David A. Newburn, 2017. "Confronting Price Endogeneity in a Duration Model of Residential Subdivision Development," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(3), pages 661-682, April.
    • Handle: RePEc:wly:japmet:v:32:y:2017:i:3:p:661-682
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    Cited by:

    1. Melstrom, Richard T., 2022. "Residential demand for sediment remediation to restore water quality: Evidence from Milwaukee," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).
    2. Li, Xiaoyu & Gopalakrishnan, Sathya & Klaiber, Allen, "undated". "To Build or Not to Build: Examining Coastal Vulnerability via Residential Development in North Carolina," 2018 Annual Meeting, August 5-7, Washington, D.C. 274443, Agricultural and Applied Economics Association.
    3. Wrenn, Douglas H. & Klaiber, H. Allen & Newburn, David A., 2019. "Price based policies for managing residential development: Impacts on water quality," Resource and Energy Economics, Elsevier, vol. 58(C).
    4. Chesher, Andrew & Kim, Dongwoo & Rosen, Adam M., 2023. "IV methods for Tobit models," Journal of Econometrics, Elsevier, vol. 235(2), pages 1700-1724.
    5. Wrenn, Douglas H. & Klaiber, Allen & Newburn, David, "undated". "Price-Based Policies for Managing Residential Land Development: Impacts on Water Quality," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258578, Agricultural and Applied Economics Association.
    6. Yun Qiu & Sathya Gopalakrishnan & H. Allen Klaiber & Xiaoyu Li, 2020. "Dredging the sand commons: the economic and geophysical drivers of beach nourishment," Climatic Change, Springer, vol. 162(2), pages 363-383, September.
    7. Wrenn, Douglas H. & Yi, Junjian & Zhang, Bo, 2019. "House prices and marriage entry in China," Regional Science and Urban Economics, Elsevier, vol. 74(C), pages 118-130.
    8. Wrenn, Douglas H. & Klaiber, Allen & Newburn, David, "undated". "Price Based Policies for Managing Residential Development and Impacts on Water Quality," 2018 Annual Meeting, August 5-7, Washington, D.C. 274029, Agricultural and Applied Economics Association.
    9. Irwin, Nicholas & Wolf, David, 2022. "Time is money: Water quality's impact on home liquidity and property values," Ecological Economics, Elsevier, vol. 199(C).
    10. C. Y. Cyrus Chu & Jou-Chun Lin & Wen-Jen Tsay, 2020. "Males’ housing wealth and their marriage market advantage," Journal of Population Economics, Springer;European Society for Population Economics, vol. 33(3), pages 1005-1023, July.
    11. Geneviève Vallée, 2018. "How Long Does It Take You to Pay? A Duration Study of Canadian Retail Transaction Payment Times," Staff Working Papers 18-46, Bank of Canada.
    12. Will Georgic & W. Jason Beasley & David Wolf, 2025. "From the Beach to the Backyard: How Harmful Algal Blooms Impact Housing Renovation Decisions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 88(5), pages 1479-1498, May.

    More about this item

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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