Economics of valuation theory: The Marshallian synthesis and the theory of equivalence

This study distinguishes between value and valuation theory as specified by Wendt (1974) and Grissom (1981, 1985) with an investigation of Marshallís synthesis and hierarchal structure of price, capitalization, and cost as theoretical premises supporting valuation techniques. These techniques are based on neo-classical equilibrium economics associated with the momentary market, the short-run, intermediate and long-run markets phases. Marshallís hierarchal theory associating specific techniques with different time periods and problem situations is contrast with the acceptance in current practice as to what Wendt termed the theory of equivalence. In practice equivalence reconciles all approaches as support for a current measure of value without considering time implications. This study empirically tests, compares and illustrates the implication of theoretically distinct approaches to valuation. The empirical analysis applies these economic theories to office assets across six spatially defined CBD (city centre) markets in the U.S. The methodology integrates micro and macro-economic models, data and units of measurement with the traditional valuation approaches initiated with Marshallís Neoclassical synthesis as noted in the works of DeLisle and Grissom (2011), Grissom (1985, 1986), Graaskamp ( 1979), and Wendt (1974).