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

Marcus Berliant and Daniel McMillen ()

Urban/Regional from University Library of Munich, Germany

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: C21 D41 R13 R21 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2004-07-29, Revised 2005-02-16
New Economics Papers: this item is included in nep-geo, nep-mic and nep-ure
Note: Type of Document - pdf; pages: 19
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https://econwpa.ub.uni-muenchen.de/econ-wp/urb/papers/0407/0407012.pdf (application/pdf)

Related works:
Journal Article: Hedonism vs. nihilism: No arbitrage and tests of urban economic models (2006)
Working Paper: Hedonism vs. Hihilism: No Arbitrage and Tests of Urban Economic Models (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpur:0407012

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