A Market-Consumer Model of Residential Property Values: The Airport-Noise—Land-Use Impact Problem

Abstract

The paper presents a model of residential property values which is more complete and theoretically grounded than previous regression studies of environmental pollution and land values. By using the distribution model of linear programming, a constrained regression hypothesis is presented which strongly interacts with the theory that generated it. The full use of dual evaluators for estimation purposes is a central feature of the new model, and is an innovative contribution. It is not necessary to observe the purchase price of individual properties, since these (and interval estimates of other offer prices) follow theoretically from the regression results. A market solution to the housing-allocation problem having been characterized, the consumer's decision problem is considered, and his solution is shown to be in general incompatible with market conditions. This incompatibility is resolved by the use of a multipage or decomposable linear program which incorporates both consumer goals and market conditions. The method of solution of this problem reflects the gain of information that leads to the purchase of a residence by each consumer, and demonstrates the value of the ‘decomposition principle’ in consumer theory. An illustration of the consumer's point of view is developed by using the noise problem of a neighborhood airport.