The Economics of Architecture

Gabriel M. Ahlfeldt, Elisabetta Pietrostefani and Ailin Zhang
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Gabriel M. Ahlfeldt: HU Berlin
Elisabetta Pietrostefani: University of Liverpool
Ailin Zhang: London School of Economics and Political Sciences

No 561, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

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 Fr´echet 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: N9 R3 (search for similar items in EconPapers)
Date: 2026-01-12
New Economics Papers: this item is included in nep-min
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