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A Note On the Estimation of Capitalization

Author

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  • J.M. Pogodzinski

    (San Jose State University)

  • David L. Sjoquist

    (Georgia State University)

Abstract

Several authors have applied the hedonic model using before-after data to estimate the willingness to pay for a change in public expenditure or amenity This article shows that attempts to interpret the results of such estimation as a measure of willingness to pay for a local amenity or public expenditure in this case are flawed. The implicit basis for such estimation is a single-jurisdiction partial equilibrium model, whereas the underlying Tiebout model is multijurisdictional and general equilibrium. It is argued that the results of such estimations incorporate biases, the direction and magnitude of which cannot be predicted. If service-tax packages are exogenous, then the hedonic model using before-after data will likely provide incorrect estimates of the willingness to pay .

Suggested Citation

  • J.M. Pogodzinski & David L. Sjoquist, 1993. "A Note On the Estimation of Capitalization," Public Finance Review, , vol. 21(4), pages 434-448, October.
    • Handle: RePEc:sae:pubfin:v:21:y:1993:i:4:p:434-448
    DOI: 10.1177/109114219302100405
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    References listed on IDEAS

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    1. J.M. Pogodzinski & Tim R. Sass, 1991. "Measuring the Effects of Municipal Zoning Regulations: A Survey," Urban Studies, Urban Studies Journal Limited, vol. 28(4), pages 597-621, August.
    2. Richter, Donald K., 1978. "The computation of urban land use equilibria," Journal of Economic Theory, Elsevier, vol. 19(1), pages 1-27, October.
    3. Paul K. Asabere & Barrie Harvey, 1985. "Factors Influencing the Value of Urban Land: Evidence from Halifax‐Dartmouth, Canada," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(4), pages 361-377, December.
    4. Yinger, John, 1982. "Capitalization and the Theory of Local Public Finance," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 917-943, October.
    5. Richard J. Arnott & Joseph E. Stiglitz, 1979. "Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 471-500.
    6. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February.
    7. Rosen, Kenneth T, 1982. "The Impact of Proposition 13 on House Prices in Northern California: A Test of the Interjurisdictional Capitalization Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 191-200, February.
    8. Ellickson, Bryan, 1971. "Jurisdictional Fragmentation and Residential Choice," American Economic Review, American Economic Association, vol. 61(2), pages 334-339, May.
    9. Herbert Mohring, 1961. "Land Values and the Measurement of Highway Benefits," Journal of Political Economy, University of Chicago Press, vol. 69(3), pages 236-236.
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