nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2011‒08‒09
twenty-six papers chosen by
Steve Ross
University of Connecticut

  1. Inefficiencies from Metropolitan Political and Fiscal Decentralization: Failures of Tiebout Competition By Stephen Calabrese; Dennis N. Epple; Richard Romano
  2. A Dynamic Model of Demand for Houses and Neighborhoods By Patrick Bayer; Robert McMillan; Alvin Murphy; Christopher Timmins
  3. Spanish housing markets during the first phase of the rural-urban transition process By Juan Carmona Pidal; Markus Lampe; Joan R. Roses
  4. Hedonic Predicted House Price Indices Using Time-Varying Hedonic Models with Spatial Autocorrelation By Alicia Rambaldi; Prasada Rao
  5. A solvable agglomeration model with unemployment By vom Berge, Philipp
  6. Education Production Function and Class-Size Effects in Japanese Public Schools By Masakazu Hojo
  7. Variability versus stability in daily travel and activity behaviour. The case of a one week travel diary By Charles Raux; Tai-Yu Ma; Eric Cornelis
  8. There Goes the Neighborhood? People’s Attitudes and the Effects of Immigration to Australia By Mathias Sinning; Matthias Vorell
  9. Acceleration or Internationalization? A Cost-Effectiveness-Analysis of Improving School Quality in Indonesia By Mohamad Fahmi; Achmad maulana; Arief Anshory Yusuf
  10. Apprenticeship: between theory and practice, school and workplace By Paul Ryan
  11. The Re-engagement in Education of Early School Leavers By David Black; Cain Polidano; Yi-Ping Tseng
  12. Who benefits the most from peer effects within ethnic group ? Empirical evidence on the South African Labour Market By Gaëlle Ferrant; Yannick Bourquin
  13. The effect of education policy on crime: an intergenerational perspective By Costas Meghir; Mårten Palme; Marieke Schnabel
  14. Long-Term Effects of Class Size By Fredriksson, Peter; Öckert, Björn; Oosterbeek, Hessel
  15. Fiscal equalization and regions' (un)willingness-to-tax: Evidence from Germany By Bönke, Timm; Jochimsen, Beate; Schröder, Carsten
  16. Surfing Alone? The Internet and Social Capital: Evidence from an Unforeseen Technological Mistake By Stefan Bauernschuster; Oliver Falck; Ludger Wößmann
  17. Is teenage motherhood contagious? Evidence from a Natural Experiment By Monstad, Karin; Propper, Carol; Salvanes, Kjell G
  18. Productivity in China's high technology industry: Regional heterogeneity and R&D By Zhang, Rui; Sun, Kai; Delgado, Michael; Kumbhakar, Subal
  19. Effect of social capital on income distribution preferences: comparison of neighborhood externality between high- and low-income households By Yamamura, Eiji
  20. Competition and Industry Structure for International Rail Transportation By Friebel, Guido; Ivaldi, Marc; Pouyet, Jérôme
  21. A Pairwise Difference Estimator for Partially Linear Spatial Autoregressive Models By Zhengyu Zhang
  22. Informal Caring and Labour Market Outcomes Within England and Wales By Drinkwater, Stephen
  23. Who is vouching for the input voucher ? decentralized targeting and elite capture in Tanzania By Pan, Lei; Christiaensen, Luc
  24. Assessing Racial Discrimination in Parole Release By Mechoulan, Stéphane; Sahuguet, Nicolas
  25. Real Estate Portfolio Management : Optimization under Risk Aversion By Fabrice Barthelemy; Jean-Luc Prigent
  26. Impact of Economic Development on Provincial Relative Price of Agricultural Product to Industrial Product in China: A Note for the Analysis of Regional Income Differences by Provincial Economic Characteristics By Keiya Eto

  1. By: Stephen Calabrese; Dennis N. Epple; Richard Romano
    Abstract: We examine the welfare effects of provision of local public goods in an empirically relevant setting using a multi-community model with mobile and heterogeneous households, and with flexible housing supplies. We characterize the first-best allocation and show efficiency can be implemented with decentralization using head taxes. We calibrate the model and compare welfare in property-tax equilibria, both decentralized and centralized, to the efficient allocation. Inefficiencies with decentralization and property taxation are large, dissipating most if not all the potential welfare gains that efficient decentralization could achieve. In property tax equilibrium centralization is frequently more efficient! An externality in community choice underlies the failure to achieve efficiency with decentralization and property taxes: Poorer households crowd richer communities and free ride by consuming relatively little housing thereby avoiding taxes.
    JEL: H1 H4 H7 H73 R1
    Date: 2011–07
  2. By: Patrick Bayer; Robert McMillan; Alvin Murphy; Christopher Timmins
    Abstract: We develop a tractable model of neighborhood choice in a dynamic setting along with a computationally straightforward estimation approach. This approach uses information about neighborhood choices and the timing of moves to recover moving costs and preferences for dynamically-evolving housing and neighborhood attributes. The model and estimator are potentially applicable to the study of a wide range of dynamic phenomena in housing markets and cities. We focus here on estimating the marginal willingness to pay for non-marketed amenities – neighborhood racial composition, air pollution, and violent crime – using rich dynamic data. Consistent with the time-series properties of each amenity, we find that a static demand model understates willingness to pay to avoid pollution and crime but overstates willingness to pay to live near neighbors of one’s own race. These findings have important implications for the class of static housing demand models typically used to value urban amenities.
    JEL: H0 H23 H41 H7 L85 R0 R14 R21 R31 R51
    Date: 2011–07
  3. By: Juan Carmona Pidal; Markus Lampe; Joan R. Roses
    Abstract: This paper discusses how Spain’s housing markets reacted to the far-reaching changes that affected the demand for dwellings during the first phase of the rural-urban transition process. To this end, we construct a new hedonic index of real housing prices and assemble a cross-regional panel dataset of price fundamentals. The results of our econometric analysis suggest that housing markets did not face supply constraints, responded swiftly to the growing demand for accommodation and were efficient. In light of this new evidence, we conclude that housing markets were not a burden for Spanish economic development and that Spain’s institutional and regulatory frameworks were suitable for the housing needs at the time.
    Keywords: Hedonic prices, Demand and supply of housing, Regulation in housing markets
    JEL: N93 N94 R30
    Date: 2011–07
  4. By: Alicia Rambaldi (School of Economics, The University of Queensland); Prasada Rao (School of Economics, The University of Queensland)
    Abstract: Hedonic housing price indices are computed from estimated hedonic pricing models. The commonly used time dummy hedonic model and the rolling window hedonic model fail to account for changing consumer preferences over hedonic characteristics and typically these models do not account for the presence of spatial correlation in prices reflecting the role of locational characteristics. This paper develops a class of models with time-varying hedonic coefficients and spatially correlated errors, provides an assessment of the predictive performance of these compared to the commonly used hedonic models, and constructs and compares corresponding price index series. Alternative weighting systems, plutocratic versus democratic, are considered for the class of hedonic imputed price indices. Accounting for seasonality in house sales data, monthly chained indices and annual chained indices based on averages of year-on-year monthly indexes are presented. The empirical results are based on property sales data for Brisbane, Australia over the period 1985 to 2005. On the basis of root mean square prediction error criterion the time-varying parameter with spatial errors is found to be the best performing model and the rolling-window model to be the worst performing model.
    Date: 2011
  5. By: vom Berge, Philipp
    Abstract: This paper develops a solvable general equilibrium agglomeration model, where search frictions for low-skilled immobile workers generate regional unemployment differentials. Contrary to other work in this field, the model yields a higher long-run unemployment rate in the core region. This is because low-skilled manufacturing jobs are more valuable there and unemployment works as a compensating differential. It therefore more closely resembles the classical result of Harris and Todaro (1970). One main difference is that here regions are ex ante equal. I derive expressions for the break and sustain point and analyze the effect of search frictions on their location.
    Keywords: Regional labor markets; New Economic Geography; job matching; unemployment
    JEL: F12 J61 J64 R12
    Date: 2011–07–04
  6. By: Masakazu Hojo
    Abstract: Education production functions are estimated using student-level achievement data for Japanese students, with emphasis on estimating the causal effect of class size on students' academic performance. The empirical results show that students‟ test scores are strongly affected by individual and family backgrounds, whereas school resource variables and teacher characteristics have a more limited impact. The causal effect of class size, which is currently being politically debated in Japan, is investigated using a regression discontinuity design. The estimation results suggest that class-size reduction has a weak impact on the academic performance of Japanese students.
    Keywords: Education production function, Class size, Regression discontinuity design, Japan
    JEL: I21 I28
    Date: 2011–07
  7. By: Charles Raux (LET - Laboratoire d'économie des transports - CNRS : UMR5593 - Université Lumière - Lyon II - Ecole Nationale des Travaux Publics de l'Etat); Tai-Yu Ma (LET - Laboratoire d'économie des transports - CNRS : UMR5593 - Université Lumière - Lyon II - Ecole Nationale des Travaux Publics de l'Etat); Eric Cornelis (Groupe de recherche sur les transports - Facultés Universitaires Notre-Dame de la Paix)
    Abstract: Temporal rhythms in travel and activity patterns are analysed thanks to a seven-day travel diary collected on 707 individuals in the city of Ghent (Belgium) in 2008. Our analysis confirms the large level of intrapersonal variability whether for daily trips, home-based tours, time use and activity sequence. However our analysis goes further by studying this variability along various time periods within the week. Moreover, we show that the systematic day-to-day variability has an extremely low share in intrapersonal variability. The influence of socio-demographic characteristics on intrapersonal variability is weak, whether for daily trips, tours, time use and activity sequence. Repetitive activity-travel behaviour is then detected, through attributes of activity at trip destination, travel mode, trip arrival time and destination location. The picture is at the same time one of diversity and of specificity in activity-travel across the week. People tend to concentrate their weekly activity-travel patterns on few combinations of attributes, despite a large dispersion. Our results on core stops are somewhat encouraging by showing some kind of concentration of activity patterns on a few "anchor" points.
    Keywords: travel behaviour ; daily travel ; activity behaviour
    Date: 2011–07–26
  8. By: Mathias Sinning; Matthias Vorell
    Abstract: This paper compares the effects of immigration flows on economic outcomes and crime levels to the public opinion about these effects using individual and regional data for Australia. We employ an instrumental variables strategy to account for non-random location choices of immigrants and find that immigration has no adverse effects on regional unemployment rates, median incomes, or crime levels. This result is in line with the economic effects that people typically expect but does not confirm the public opinion about the contribution of immigration to higher crime levels, suggesting that Australians overestimate the effect of immigration on crime.
    JEL: F22 J61
    Date: 2011–07
  9. By: Mohamad Fahmi (Department of Economics, Padjadjaran University); Achmad maulana (Department of Economics, Padjadjaran University); Arief Anshory Yusuf (Department of Economics, Padjadjaran University)
    Abstract: As a means to improve the school quality in Indonesia, Indonesian government introduced and encouraged two different kinds of programs: The International Standard Schools and Acceleration Class Program. Both programs are expected to contribute to improve the quality of education system in Indonesia. However, quantitative analysis to evaluate their impact on student’s performance is lacking in the literature. In this paper, we use the Difference in Difference method (DD) using the school data from Indonesian Family Life Survey (IFLS) to estimate the effectiveness of both programs in increasing school performance, measured by their national exam score. We then combined the cost data with this effectiveness measure to compare their cost-effectiveness. Our finding suggests that international standard school program is more effective to increase the math and bahasa score. However, in term of cost-effectiveness the result is mixed. International standard school is more cost-effective in increasing students score in bahasa, while acceleration class is more cost-effective in increasing students score in math subject.
    Keywords: Acceleration Class, International Standard School, Cost Effectiveness Analysis, Difference in Difference, Indonesia
    JEL: J31
    Date: 2011–07
  10. By: Paul Ryan (King’s College Cambridge)
    Date: 2011–07
  11. By: David Black (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Cain Polidano (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Yi-Ping Tseng (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: By OECD standards, the share of the Australian labour force with at least a secondary school qualification is low. One way to rectify this shortfall is to improve rates of re-engagement in education among early school leavers. This paper examines the patterns of re-engagement among early school leavers in the HILDA sample. A key finding is that the early years after leaving school are crucially important, with rates of re-engagement dropping dramatically in the first three years out from school. For those who enter the labour market after school, results suggest that finding work, especially satisfying work, is an important driver for returning to study.
    Keywords: Early school leavers, vocational education and training, re-engaging in education
    JEL: J01 I21
    Date: 2011–06
  12. By: Gaëlle Ferrant (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Yannick Bourquin (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: This paper provides evidence that local social interactions within etnic groups may explain the puzzling variations in labour-market outcomes across individuals. Peer effects work first by creating pressure on labor-market participation, second, by conveying information about job opportunities and by raising wages. These effects differ through a selection effect : gender and ethnic groups who are less integrated in the labour market benefit more from peer effect. Finally, networks exhibit decreasing returns. The problems of endogeneity and simultaneity of local peer effects are addressed by using (i) data aggregated at the province level, (ii) the distribution of the sex of the peers' siblings as an instrumental variable and (iii) a quasi-panel data approach relying on the Hausman-Taylor estimator. The importance of social interactions in the labour market suggests that a social multiplier exists and our estimates show that any labour-market shock is magnified with an elasticity of 0.5.
    Keywords: Peer effects, development economics, labour, South Africa.
    Date: 2011–07
  13. By: Costas Meghir (Institute for Fiscal Studies and Yale University); Mårten Palme (Institute for Fiscal Studies and University of Stockholm); Marieke Schnabel
    Abstract: <p>The Swedish comprehensive school reform implied an extension of the number of years of compulsory school from 7 or 8 to 9 for the entire nation and was implemented as a social experiment by municipality between 1949 and 1962. A previous study (Meghir and Palme, 2005) has shown that this reform significantly increased the number of years of schooling as well as labor earnings of the children who went through the post reform </p><p>school system, in particular for individuals originating from homes with low educated fathers. This study estimates the impact of the reform on criminal behavior: both within the generation directly affected by the reform as well as their children. We use census data on all born in Sweden between 1945 and 1955 and all their children merged with individual register data on all convictions between 1981 and 2008. We find a significant inverse effect of the reform on criminal behavior of men and on sons to fathers who went through the new school system.</p>
    Date: 2011–07
  14. By: Fredriksson, Peter (Stockholm University); Öckert, Björn (IFAU); Oosterbeek, Hessel (University of Amsterdam)
    Abstract: This paper evaluates the long-term effects of class size in primary school. We use rich administrative data from Sweden and exploit variation in class size created by a maximum class size rule. Smaller classes in the last three years of primary school (age 10 to 13) are not only beneficial for cognitive test scores at age 13 but also for non-cognitive scores at that age, for cognitive test scores at ages 16 and 18, and for completed education and wages at age 27 to 42. The estimated effect on wages is much larger than any indirect (imputed) estimate of the wage effect, and is large enough to pass a cost-benefit test.
    Keywords: educational attainment, non-cognitive skills, cognitive skills, regression discontinuity, class size, earnings
    JEL: I21 I28 J24 C31
    Date: 2011–07
  15. By: Bönke, Timm; Jochimsen, Beate; Schröder, Carsten
    Abstract: Under cooperative federalism, when an identical tax tariff applies to all regions of a federation, usually redistribution rules are implemented to smooth fiscal differences. The administration of tax collection, however, is sometimes delegated to the regional level, leaving the regional administrations some discretion concerning the auditing of tax returns. Building on a stylized model, we show that under such conditions granted discretionary tax deductions at the level of tax units is positively related to state-specific marginal rates of loss (MRL), i.e., the fraction of an additional tax Euro raised in a region that the fiscal-equalization system redistributes to other jurisdictions. We empirically test the model's presumption using administrative income-tax micro data from Germany. Regression estimates comply with the implications of our model. --
    Keywords: Fiscal federalism,rate of loss,income tax returns
    JEL: C21 H21 H77
    Date: 2011
  16. By: Stefan Bauernschuster; Oliver Falck; Ludger Wößmann
    Abstract: Does the Internet undermine social capital or facilitate inter-personal and civic engagement in the real world? Merging unique telecommunication data with geo-coded German individual-level data, we investigate how broadband Internet affects several dimensions of social capital. One identification strategy uses panel information to estimate value-added models. A second exploits a quasi-experiment in East Germany created by a mistaken technology choice of the state-owned telecommunication provider in the 1990s that still hinders broadband Internet access for many households. We find no evidence that the Internet reduces social capital. For some measures including children’s social activities, we even find significant positive effects.
    Keywords: Internet, social capital
    JEL: Z13 J24
    Date: 2011
  17. By: Monstad, Karin; Propper, Carol; Salvanes, Kjell G
    Abstract: There is relatively little research on peer effects in teenage motherhood despite the fact that peer effects, and in particular social interaction within the family, is likely to be important. We estimate the impact of an elder sister’s teenage fertility on the teenage childbearing of their younger sister. To identify the peer effect we utilize an educational reform that impacted on the elder sister’s teenage fertility. Our main result is that within families, teen births tend to be contagious and the effect is larger where siblings are close in age and for women from low resource households.
    Keywords: education; spillover effects; teenage pregnancy
    JEL: I21 J13 J24
    Date: 2011–08
  18. By: Zhang, Rui; Sun, Kai; Delgado, Michael; Kumbhakar, Subal
    Abstract: This paper analyzes the impact of Research and Development (R&D) on the productivity of China's high technology industry. In order to capture important differences in the effect of R&D on output that arise from geographic and socioeconomic differences across three major regions in China, we use a novel semiparametric approach that allows us to model heterogeneities across provinces and time. Using a unique provincial level panel dataset spanning the period 2000-2007, we find that the impact of R&D on output varies substantially in terms of magnitude and significance across different regions. Results show that the eastern region benefits the most from R&D investments, however it benefits the least from technical progress, while the western region benefits the least from R&D investments, but enjoys the highest benefits from technical progress. The central region benefits from R&D investments more than the western region and benefits from technical progress more than the eastern region. Our results suggest that R&D investments would significantly increase output in both the eastern and central regions, however technical progress in the central region may further compound the effects of R&D on output within the region.
    Keywords: China; Research and Development; Productivity; Semiparametric smooth coefficient model
    JEL: C14 L00
    Date: 2011–06–30
  19. By: Yamamura, Eiji
    Abstract: This paper explores how individual preferences for income redistribution are influenced by social capital, which is measured by rates of participation in community activities. I combined individual-level data and place of residence data to examine how social capital accumulated in residential areas influences an individual’s preference for income redistribution. After controlling for individual characteristics, I obtained the following key findings: people are more likely to prefer income redistribution in areas with higher rates of community participation. This tendency is more clearly observed in high-income groups than in low-income groups. This implies that one’s preference for income redistribution is influenced by psychological externalities.
    Keywords: Redistribution; Social capital; Inequality; Externality
    JEL: D63 H20 D30 Z13
    Date: 2011–07–24
  20. By: Friebel, Guido (Goethe University Frankfurt); Ivaldi, Marc (Toulouse School of Economics); Pouyet, Jérôme (Paris School of Economics)
    Abstract: This paper investigates various options for the organization of the railway industry when network operators require the access to multiple national networks to provide international (freight or passenger) transport services. The EU rail system provides a framework for our analysis. Returns-to-scale and the intensity of competition are key to understanding the impact of vertical integration or separation between infrastructure and operation services within each country in the presence of international transport services. We also consider an option in which a transnational infrastructure manager is in charge of oering a coordinated access to the national networks. In our model, it turns out to be an optimal industry structure.
    Keywords: Network access, Vertical separation, Transport economics
    JEL: L14 L42 L51 L92
    Date: 2011–07–18
  21. By: Zhengyu Zhang (Center for Econometric Study, Shanghai Academy of Social Sciences)
    Abstract: Su and Jin (2010) develop for partially linear spatial autoregressive (PL-SAR) model a profile quasimaximum likelihood based estimation procedure. More recently, Su (2011) proposes for this model a semiparametric GMM estimator. However, both of them can be computationally challenging for applied researchers and are not easy to implement in practice. In this article, we propose a computationally simple estimator for the PL-SAR model in the presence of either heteroscedastic or spatially correlated error terms. This estimator blends the essential features of both the GMM estimator for linear SAR model and the pairwise difference estimator for conventional partially linear model. Limiting distribution of the proposed estimator is established and consistent estimator for its asymptotic CV matrix is provided. Monte Carlo studies indicate that our estimator is attractive particularly when one is interested in estimating the finite-dimensional parameters in the model.
    Keywords: Spatial autoregression, Partially linear model, Pairwise difference
    JEL: C13 C14 C21
    Date: 2011–07
  22. By: Drinkwater, Stephen (Swansea University)
    Abstract: This paper focuses on the links between informal care provision and labour market activity at the sub-national level. Within-country analysis of this issue has been very limited to date despite the wide regional variations in informal care provision that often exist. This issue is important in the context of policy decisions in Wales and other parts of the UK because of relatively high levels of informal caring in certain areas, especially in the South Wales Valleys. In particular, given that these areas typically have the lowest economic activity and employment rates, labour market differences can be exacerbated by the provision of informal caring by people of working age. Despite the wide variations in informal care provision, it is found that labour market outcomes do not differ markedly by different care categories across spatial areas within England and Wales. However, the analysis reveals that labour market outcomes for males as well as females are heavily influenced for those who provide high levels of caring, especially in the South Wales Valleys. For example, the largest impact of caring on the probability of not working for males and for part-time work for females is seen in this area.
    Keywords: informal care provision, labour market outcomes, area variations
    JEL: J22 R23
    Date: 2011–07
  23. By: Pan, Lei; Christiaensen, Luc
    Abstract: Input subsidy programs carry support as instruments to increase agricultural productivity, provided they are market-smart. This requires especially proper targeting to contain the fiscal pressure, with decentralized targeting of input vouchers currently the instrument of choice. Nonetheless, despite clear advantages in administrative costs, the fear of elite capture persists. These fears are borne out in the experience from the 2008 input voucher pilot program in Kilimanjaro, Tanzania, examined here. Elected village officials received about 60 percent of the distributed vouchers, a factor that significantly reduced the targeting performance of the program, especially in more unequal and remote communities. When targeting the poor, greater coverage and a focus on high trust settings helped mitigate these concerns. The findings highlight the continuing need for scrutiny when relying on decentralized targeting. A clearer sense of purpose (increasing productivity among poorer farmers versus increasing aggregate output) could also enhance the targeting performance.
    Keywords: Rural Poverty Reduction,Economic Theory&Research,Housing&Human Habitats,Services&Transfers to Poor,Regional Economic Development
    Date: 2011–05–01
  24. By: Mechoulan, Stéphane; Sahuguet, Nicolas
    Abstract: We investigate possible racial discrimination in the context of discretionary parole release. We develop a rational choice model of release whereby a parole board must balance parolees' risk of violation with the cost of not releasing prisoners who may not violate their parole. A color-blind parole board would release all individuals below a certain risk threshold. To test this prediction, we take advantage of a unique data set that reports all prisoners released on parole between 1983 and 2003 in the U.S. We apply the outcome test methodology recently used to assess racial profiling in police search decisions. Here, a higher rate of parole violation within a group suggests that the parole board used a less restrictive paroling criterion, and is thus biased in favor of that group. To overcome the concern of inframarginality that traditionally plagues outcome tests we provide evidence that parole boards strategically time the release of parolees. In turn, both minority and White prisoners become marginal from the perspective of their probability of parole violation. Parole boards operating under an indeterminate sentencing regime appear biased against White prisoners whose violation rate is significantly smaller than that of African Americans. In contrast, this gap is smaller or null when there is no discretion in the paroling system. Further evidence rules out post-release discrimination. We propose different hypotheses to account for the evidence.
    Keywords: discrimination; outcome test; parole release; race
    JEL: J15 K40
    Date: 2011–08
  25. By: Fabrice Barthelemy; Jean-Luc Prigent (THEMA, Universite de Cergy-Pontoise; THEMA, Universite de Cergy-Pontoise)
    Abstract: This paper deals with real estate portfolio optimization when investors are risk averse. In this framework, we determine several types of optimal times to sell a diversified real estate and analyze their properties. The optimization problem corresponds to the maximization of a concave utility function defined on the terminal value of the portfolio. We extend previous results (Baroni et al., 2007, and Barthélémy and Prigent, 2009), established for the quasi linear utility case, where investors are risk neutral. We consider four cases. In the first one, the investor knows the probability distribution of the real estate index. In the second one, the investor is perfectly informed about the real estate market dynamics. In the third case, the investor uses an intertemporal optimization approach which looks like an American option problem. Finally, the buy-and-hold strategy is considered. For these four cases we analyze numerically the solutions that we compare with those of the quasi linear case. We show that the introduction of risk aversion allows to better take account of the real estate market volatility. We also introduce the notion of compensating variation to better compare all these solutions.
    Keywords: Real estate portfolio, Optimal holding period, Risk aversion, Real estate market volatility
    JEL: C61 G11 R21
    Date: 2011
  26. By: Keiya Eto
    Date: 2011–08

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