Do "capitalization effects" for public goods reveal the public's willingness to pay?

Nicolai Kuminoff, Jaren C. Pope

Research output: Contribution to journalArticle

65 Citations (Scopus)

Abstract

This article develops a welfare theoretic framework for interpreting evidence on the impacts of public programs on housing markets. We extend Rosen's hedonic model to explain how housing prices capitalize exogenous shocks to public goods and externalities. The model predicts that trading between heterogeneous buyers and sellers will drive a wedge between these "capitalization effects" and welfare changes. We test this hypothesis in the context of changes in measures of school quality in five metropolitan areas. Results from boundary discontinuity designs suggest that capitalization effects understate parents' willingness to pay for public school improvements by as much as 75%.

Original languageEnglish (US)
Pages (from-to)1227-1250
Number of pages24
JournalInternational Economic Review
Volume55
Issue number4
DOIs
StatePublished - Nov 1 2014

Fingerprint

Capitalization
Willingness-to-pay
Housing market
Exogenous shocks
School quality
Discontinuity
Hedonic model
Housing prices
Metropolitan areas
Buyers
Externalities
Hypothesis test
Public schools
Seller
School improvement

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Do "capitalization effects" for public goods reveal the public's willingness to pay? / Kuminoff, Nicolai; Pope, Jaren C.

In: International Economic Review, Vol. 55, No. 4, 01.11.2014, p. 1227-1250.

Research output: Contribution to journalArticle

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