The Economics of Architecture

Gabriel Ahlfeldt, Elisabetta Pietrostefani and Ailin Zhang

No 12399, CESifo Working Paper Series from CESifo

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 references. 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.

Keywords: architecture; design; economics; regulation; welfare (search for similar items in EconPapers)
JEL-codes: H2 R5 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12399

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