Capitalization as a Two-Part Tariff: The Role of Zoning

88 Pages Posted: 22 Mar 2019 Last revised: 29 Apr 2020

See all articles by H. Spencer Banzhaf

H. Spencer Banzhaf

Board of Governors of the Federal Reserve System

Kyle Mangum

Federal Reserve Bank of Philadelphia; Georgia State University - Department of Economics

Date Written: 2019-03-21

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.

Keywords: capitalization, housing markets, land-use regulation, hedonics, amenities and public goods, two-part pricing

JEL Classification: D45, H41, H73, R31, R52

Suggested Citation

Banzhaf, H. Spencer and Mangum, Kyle, Capitalization as a Two-Part Tariff: The Role of Zoning (2019-03-21). FRB of Philadelphia Working Paper No. 19-20, Available at SSRN: https://ssrn.com/abstract=3357835 or http://dx.doi.org/10.21799/frbp.wp.2019.20

H. Spencer Banzhaf (Contact Author)

Board of Governors of the Federal Reserve System

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Kyle Mangum

Federal Reserve Bank of Philadelphia ( email )

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Philadelphia, PA 19106-1574
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Georgia State University - Department of Economics ( email )

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Atlanta, GA 30302-3992
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