Consistent Estimates of the Elasticity of Substitution between Land and Non-Land Inputs in the Production of Housing
J. OF URBAN ECONOMICS
Posted: 22 Nov 1996
This paper reports new estimates of the elasticity of substitution between land and non-land inputs in the production of housing. Errors in the measurement of land value may have biased existing estimates of the substitution elasticity downward, leading to the conclusion that the substitution elasticity is less than one. The data analyzed in this study consist of observations on the transaction prices of both the lot and house, obtained by tracking the development of residential subdivisions. The results indicate that the substitution elasticity is higher than indicated in previous studies, and may not differ significantly from one.
JEL Classification: R32
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