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Hedonism vs. Nihilism: No Arbitrage and Tests of Urban Economic Models

Marcus Berliant () and Daniel McMillen ()

Urban/Regional from EconWPA

Abstract: We present two notions of “no arbitrage” in urban economic models and show that there is no model satisfying both. The standard hedonic housing model of urban economics and its generalizations are consistent with the first of these, but inconsistent with the second. We present a model consistent with the second notion of “no arbitrage” and a continuum of models consistent with neither notion that are observationally equivalent to the standard model, even if the utility function of consumers is known. Only one of these is the standard model. Thus, the available tests of the standard model cannot provide much evidence of its validity. Finally, we examine nonlinear price systems consistent with the second notion of "no arbitrage" and their welfare consequences.

Keywords: Monocentric City; Hedonic Models; No Arbitrage (search for similar items in EconPapers)
JEL-codes: R21 R13 D41 C21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo, nep-mic and nep-ure
Date: 2004-07-29, Revised 2005-02-16
Note: Type of Document - pdf; pages: 19
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Journal Article: Hedonism vs. nihilism: No arbitrage and tests of urban economic models (2006) Downloads
Working Paper: Hedonism vs. Hihilism: No Arbitrage and Tests of Urban Economic Models (2003) Downloads
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