Forms of Utility Function for Residential Behavior Analysis and Neighborhood Benefits Estimation

Abstract

The main objective of this paper is to answer the question of what form of utility function is best for forecasting residential behavior and estimating the benefits of various neighborhood changes. This question is a key factor when consistently analyzing the impacts of residential environmental changes on residential behavior and measuring the benefits, because the magnitude and sensitivity of such impacts and benefits vary with the specified utility function forms. In this paper, first, residential behavior is formulated and then benefits of residential environmental changes are rigorously defined emphasizing the importance of estimating the utility function. Second, four utility function forms, namely, linear, log-linear, CES (constant elasticity of substitution), and VES (variable elasticity of substitution), are adopted, and a method for estimating the parameters of the specified utility functions is proposed. Based on a case study, it is concluded that the CES form is best in terms both of analyzing residential behavior and of estimating the benefits of various neighborhood changes.