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The Economics of Architecture

Author

Listed:
  • Gabriel M. Ahlfeldt
  • Elisabetta Pietrostefani
  • Ailin Zhang

Abstract

We illustrate the coordination problem in the provision of distinctive architectural design that arises from design externalities within a quantitative model. To quantify the model, we conduct a quantitative review of a growing literature concerned with the costs and benefits of distinctive design as well as a survey of architectural design preferences. We find that distinctive buildings sell at a 15% premium, on average. Positive design spillovers from distinctive nearby buildings result in a 9% premium. Distinctive buildings, however, are about 25% more expensive to build. The distribution of design ratings within buildings is well described by a Fréchet distribution with a shape parameter of about 4. Parametrising the model to match these moments, we show in counterfactual simulations that the optimal subsidy of distinctive buildings amounts to 10% of construction costs.

Suggested Citation

  • Gabriel M. Ahlfeldt & Elisabetta Pietrostefani & Ailin Zhang, 2026. "The Economics of Architecture," Berlin School of Economics Discussion Papers 0088, Berlin School of Economics.
    • Handle: RePEc:bdp:dpaper:0088
    DOI: 10.48462/opus4-6032
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • N9 - Economic History - - Regional and Urban History

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