A Spatial Portfolio Theory of Household Location Choice
14 Pages Posted: 2 Oct 2009
Date Written: October 2, 2009
Classical residential location choice models were constructed as uncertainty-free. Using the expected utility theorem, urban researchers have dealt with different types of uncertainties, such as uncertain income, uncertain housing price, uncertain transportation cost, etc. This paper, however, considers uncertain traveling frequencies in 2-workplace setting, a novel theory on the emergence of a new centre between two existing CBDs can then be formulated. It can be regarded as a spatial portfolio theory as the theory predicts that household location choice would strike a balance between commuting cost savings (return) and variance of the savings (risk). Casual empirical evidence on the housing transaction price gradient changes in Hong Kong supports the theory.
Keywords: multiple workplaces, housing demand, price gradient, commuting distance, traveling frequency
JEL Classification: R21
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