Fed in Print

Abstract

This paper shows that the capitalization of local amenities is effectively priced into land via a two-part pricing formula: a \ticket" price paid regardless of the amount of housing service consumed and a \slope" price paid per unit of services. We first show theoretically how tickets arise as an extensive margin price when there are binding constraints on the number of households admitted to a neighborhood. We use a large national dataset of housing transactions, property characteristics, and neighbor- hood attributes to measure the extent to which local amenities are capitalized in ticket prices vis-a-vis slopes. We find that in most U.S. cities, the majority of neighborhood variation in pricing occurs via tickets, although the importance of tickets rises sharply in the stringency of land development regulations, as predicted by theory. We discuss implications of two-part pricing for efficiency and equity in neighborhood sorting equilibria and for empirical estimates of willingness to pay for non-marketed amenities, which generally assume proportional pricing only.

JEL Classification:

D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

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