Confronting Price Endogeneity in a Duration Model of Residential Subdivision Development

Douglas Wrenn (), Henry Klaiber and David Newburn

No 205556, 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California from Agricultural and Applied Economics Association

Abstract: Spatial equilibrium implies that distant factors are correlated with proximate locations through market mechanisms. Using this logic, we develop a novel approach for handling price endogeneity in reduced-form land use models. We combine a control function approach with a duration model of land development to shed new light on the role of price and supply-side factors that influence subdivision development at a micro level. We find that failure to control for endogeneity results in large differences in estimates of residential land supply price elasticities. Specifically, we find an elasticity of 2.06 compared to 0.67 in a model that ignores potential endogeneity.

Keywords: Land Economics/Use; Research Methods/ Statistical Methods (search for similar items in EconPapers)
Pages: 41
Date: 2015
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea15:205556

DOI: 10.22004/ag.econ.205556

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