Bryan Ellickson

An Alternative Test of the Hedonic Theory of Housing Markets

Abstract In this paper the hedonic theory of housing markets is used to generate a multinomial logit model of household behavior in an urban housing market. Application of hedonic theory to housing markets is by now fairly familiar and a link to multinomial logit has also been established. However, by emphasizing more heavily the bid price interpretation of hedonic theory, this paper develops a new connection to econometric estimation that essentially involves running the usual logit equations in reverse. One advantage of this approach is that the link between the logit equations and hedonic theory involves bid price rather than utility functions, and this in turn permits the empirical results to be given an extremely clear interpretation. Furthermore, in contrast to the standard logit model, the extreme value distribution required to justify the estimation technique emerges endogenously as part of the analysis.

Clubs and the Market

This paper defines a general equilibrium model with exchange and club formation. Agents trade multiple private goods widely in the market, can belong to several clubs, and care about the characteristics of the other members of their clubs. The space of agents is a continuum, but clubs are finite. It is shown that (i) competitive equilibria exist, and (ii) the core coincides with the set of equilibrium states. The central subtlety is in modeling club memberships and expressing the notion that membership choices are consistent across the population.

Clubs and the Market: Large Finite Economies

We study large finite club economies in which agents can belong to several clubs, and care about the characteristics of the other club members. Club memberships must be integer consistent in aggregate. We show that states in the approximate core can approximately be decentralized by prices for private goods and for club memberships, that the approximate core is nonempty, and that approximate club equilibria exist. Our arguments use the convexification tools used for private goods economies, but we also develop a new tool to address the consistency requirement on memberships that are special to club economies. This tool allows us to overcome the integer consistency problems that are avoided in our (1999) paper by assuming a continuum of agents.

The politics and economics of decentralization

Abstract This paper analyzes a simple general equilibrium model with local public goods subject to exclusion and crowding. In general, no competitive equilibrium exists for such models. However, in this paper we study a four-person example, satisfying assumptions formulated in a paper by McGuire [Group segregation and optimal jurisdictions, J. Political Econ. 82, 112–132 (1974)], in which a competitive equilibrium does exist. This example demonstrates that the model is capable of generating realistic implications regarding stratification of jurisdictions, the decision to subdivide or consolidate jurisdictions, reliance on exclusionary zoning, and the use of revenue sharing.

The Organization of Production, Consumption and Learning

This paper provides an extension of general equilibrium theory that incorporates the actions of individuals both as demanders and suppliers of goods and as members of firms, schools, social groups, and contractual relationships. The central notion of the paper is a group: a collection of individuals associated with one another for some purpose. The model takes as primitive an exogenous set of group types, interpretable as (potential) firms, schools, social groups, contracts etc. The types of schools and firms that materialize in equilibrium, as well as the way that agents acquire skills, are determined endogenously in a competitive market, as are the contracts they enter into, and the production and consumption of private commodities. The model is well-founded (equilibrium exists) and passes a basic test of perfect competition (coincidence of the core with the set of equilibrium states). Examples and Applications illustrate the flexibility and power of the framework.

Local Public Goods and the Market for Neighborhoods

Publisher Summary This chapter presents conditions under which a competitive market could exist and, presenting the assumption that these conditions are satisfied, reviews the properties that such markets would exhibit. The notion of a market for neighborhoods can mean different things to different people. The phrase may be used, for example, to indicate that consumers shop for neighborhoods and houses. When an economist says that a market exists, it is meant that the market is competitive. To claim that a market is competitive implies, in turn, that it is efficient, that a prima facie case exists against intervention in the market, and that the proper role of government is to confine its actions to the redistribution of income. To assert that the market for neighborhoods is competitive represents, therefore, a very strong claim. Establishing conditions under which a competitive market for neighborhoods could exist is not a trivial task. The existence of neighborhoods implies the existence of externalities, commonly thought to be a source of market failure. Residence in a neighborhood can also be viewed as consumption of a public good, and public goods are another potential source of market failure. There is little basis in conventional economic theory to justify the belief that competitive behavior is possible under such conditions.

A competitive model of economic geography

Most of the literature argues that competitive analysis has nothing interesting to say about location. This paper argues, to the contrary, that a competitive model can have something interesting to say about location, provided that locations are not identical and transportation costs are not zero. To do this, it constructs a competitive intertemporal general equilibrium model and applies it to a suggestive example of migration.

Public goods and joint supply

Abstract An example is presented which illustrates how analysis of the core of an economy can be used to clarify the debate between Demsetz and Samuelson on the relationship between public goods and joint supply. The core converges to the competitive allocation in an economy with joint supply but the core of a public goods economy does not converge to the Lindahl allocation. The example should prove useful as a pedagogic device, serving as a simple introduction to the technical literature on the core of an economy with public goods.

Stocks in the Short Run

The existing literature estimates stock-price volatility accumulated over the trading day. We focus on what happens to volatility within the trading day. Using transactions data from 2001 through 2009, we estimate the path of the quadratic variation process in 5-minute increments day by day for the 30 stocks of the DJIA and for an exchange-traded fund (the SPDR) that tracks the S&P 500. Using a Heston (1993) model, we estimate that 80% of the gap between the level of the volatility process and its asymptotic mean is eliminated within 5-minutes. Roughly two-thirds of daily realized volatility can be explained by a deterministic version of the Heston model that begins the trading day far above its equilibrium and converges to a constant. The remaining third reflects stochastic shocks to volatility arriving after trade begins. The asymptotic mean of the SPDR behaves much like the closing value of the VIX, a volatility index based on the S&P 500 stock index. When standardized by our 5-minute volatility estimates, 5-minute log returns are approximately normally distributed.