Consistent estimates of the elasticity of substitution between and and non-land inputs in the production of housing

This paper reports new estimates of the elasticity of substitution between land and non-land inputs in the production of housing. Errors in the measurement of land value may have biased existing estimates of the substitution elasticity downward, leading to the conclusion chat the substitution elasticity is less than one. The data analyzed in this study consist of observations on the transaction prices of both the lot and the house, obtained by tracking the development of residential subdivisions. The results indicate that the substitution elasticity is higher than indicated in previous studies, and may not differ significantly from one. (C) 1997 Academic Press.