Evolution of Land Values in Cracow during the Transformation of the Polish Economy

The transformation of the Polish economy during the early 1990s offers an unusual opportunityto examine the evolution of a new market for urban land. There has been a great deal oftheoretical and empirical research focused on urban land value functions that has derived fromthe work of Muth (1969) and Mills (1972). Data sets permitting the empirical testing oftheoretical structures are few but two sources for the city of Chicago have resulted in numerousstudies focusing on this city. These sources are Hoyt (1933) and "Olcott's Land Values BlueBook of Chicago" which together provide actual and estimated values for tracts of land inChicago at various intervals from 1830 to 1990. These sources are discussed and the dataanalyzed using non-parametric techniques in McMillen (1996). Most studies have found that afourth-order polynomial is required to explain land values and that as time as passed, the landvalue function has become more complex as transportation systems and neighborhoods haveevolved and employment nodes and shopping districts have multiplied. For example, McDonaldand Bowman (1979) find that explanatory power declines over time and that more complexfunctional forms do a better job of explaining variation in land price perhaps reflectingincreasing complexity of the urban environment and the increasing likelihood that distance fromthe city center provides an inadequate explanation. In this study, we begin an analysis of landvalues in Cracow using parametric techniques in order to benchmark our outcomes against theresults of prior studies in developed market economies. At this stage, we do not address the issueof selectivity bias or a dynamic approach. In the next section, we summarize political andeconomics events leading up to, as well as the strategy implemented by the leadership in Polandto privatize land markets. In the third and fourth sections, we discuss the theory and describe thedata set which has been accumulated. We follow that with our analysis, results and ideas forfuture research.