Hedonism vs. Nihilism: No Arbitrage and Tests of Urban Economic Models
- Creators
- Berliant, Marcus
- McMillen, Daniel P.
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.
Additional Information
The authors thank participants at the real estate seminar of the Haas School of Business at the University of California, Berkeley. The authors also thank Jan Brueckner, Ed Coulson, John Nachbar, Bob Pollak, Paul Rothstein, Suzanne Scotchmer, Jacques Thisse, Nancy Wallace and particularly David Pines for helpful comments. The first author gratefully acknowledges financial support from the American Philosophical Society. Published as Berliant, M., & McMillen, D.P. (2006). Hedonism vs. nihilism: No arbitrage and tests of urban economic models. Regional Science and Urban Economics, 36(1), 118-131.Attached Files
Submitted - sswp1166.pdf
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Additional details
- Eprint ID
- 79709
- Resolver ID
- CaltechAUTHORS:20170801-150130331
- American Philosophical Society
- Created
-
2017-08-01Created from EPrint's datestamp field
- Updated
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2019-10-03Created from EPrint's last_modified field
- Caltech groups
- Social Science Working Papers
- Series Name
- Social Science Working Paper
- Series Volume or Issue Number
- 1166