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Hedonism vs. Nihilism: No Arbitrage and Tests of Urban Economic Models

Berliant, Marcus and McMillen, Daniel P. (2003) Hedonism vs. Nihilism: No Arbitrage and Tests of Urban Economic Models. Social Science Working Paper, 1166. California Institute of Technology , Pasadena, CA. (Unpublished)

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We present two notions of "no arbitrage" in urban economic models and show that there is no model satisfying both. The standard hedonic housing model of urban economics and its generalizations are consistent with the first of these, but inconsistent with the second. We present a model consistent with the second notion of "no arbitrage" and a continuum of models consistent with neither notion that are observationally equivalent to the standard model, even if the utility function of consumers is known. Only one of these is the standard model. Thus, the available tests of the standard model cannot provide much evidence of its validity. Finally, we examine nonlinear price systems consistent with the second notion of "no arbitrage" and their welfare consequences.

Item Type:Report or Paper (Working Paper)
Additional Information:The authors thank participants at the real estate seminar of the Haas School of Business at the University of California, Berkeley. The authors also thank Jan Brueckner, Ed Coulson, John Nachbar, Bob Pollak, Paul Rothstein, Suzanne Scotchmer, Jacques Thisse, Nancy Wallace and particularly David Pines for helpful comments. The first author gratefully acknowledges financial support from the American Philosophical Society. Published as Berliant, M., & McMillen, D.P. (2006). Hedonism vs. nihilism: No arbitrage and tests of urban economic models. Regional Science and Urban Economics, 36(1), 118-131.
Group:Social Science Working Papers
Funding AgencyGrant Number
American Philosophical SocietyUNSPECIFIED
Subject Keywords:Monocentric City, Hedonic Models, No Arbitrage
Series Name:Social Science Working Paper
Issue or Number:1166
Classification Code:JEL: R21, R13, D41, C21
Record Number:CaltechAUTHORS:20170801-150130331
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79709
Deposited By: Jacquelyn Bussone
Deposited On:01 Aug 2017 22:42
Last Modified:03 Oct 2019 18:23

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