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

68 Pages Posted: 1 Apr 2019 Last revised: 22 Mar 2023

See all articles by H. Spencer Banzhaf

H. Spencer Banzhaf

Georgia State University - Department of Economics; PERC - Property and Environment Research Center; National Bureau of Economic Research (NBER)

Kyle Mangum

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

Date Written: March 2019

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 neighborhood 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.

Suggested Citation

Banzhaf, H. Spencer and Mangum, Kyle and Mangum, Kyle, Capitalization as a Two-Part Tariff: The Role of Zoning (March 2019). NBER Working Paper No. w25699, Available at SSRN: https://ssrn.com/abstract=3363435

H. Spencer Banzhaf (Contact Author)

Georgia State University - Department of Economics ( email )

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PERC - Property and Environment Research Center

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Kyle Mangum

Georgia State University - Department of Economics ( email )

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