Modelling Intra-urban Location Preferences under Rational Expectations

Abstract

The purpose of this paper is to: (1) extend the traditional Generalised Linear Expenditure System, as it has been applied in location theory, by including rational expectations in the formulation; (2) rank intra-urban places in accordance with households' location preferences; (3) investigate the impact of location preferences on housing demand and urban growth; and (4) study the role of price and expenditure expectations on the formation of housing demand. The theoretical model was tested for seven departments of the Region of Attica, Greece, using monthly data for the period July 1977-October 1988. The Full Information Maximum Likelihood procedure was used to estimate the model. The findings provide useful information including guidelines for government policies concerning income, housing price and interest rate subsidies.