Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/86851 
Year of Publication: 
2010
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 10-087/3
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
The market for commercial properties is characterised by extreme heterogeneity in demand. In this paper, we aim to gain more insight in the heterogeneity in demand for employment agglomeration and size of the rental property using a two-stage hedonic approach following Bajari and Benkard (2005). We use unique micro-data of properties' attributes as well as of firm characteristics. Given assumptions on the functional form of the production function, we identify firm-specific parameters using a nonparametric control function approach that corrects for endogeneity. The results show that agglomeration benefits are capitalised in rents: a one standard deviation increase in agglomeration leads to an increase in the annual rents of about 6 percent. It is found that larger and business services firms are willing to pay (substantially) more for agglomeration. Furthermore, for office buildings a 10 percent increase in number of employees increases the marginal willingness to pay for floor space with 8 percent, which suggests that internal returns to scale are present.
Subjects: 
Demand estimation
nonparametric estimation
hedonics
commercial properties
JEL: 
C14
L1
Document Type: 
Working Paper

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