Radical uncertainty and the effect of transport infrastructure on land prices

Abstract

ABSTRACT Most contributions in the academic literature identify a positive effect of transport infrastructure on land prices. However, their short-run dynamics has not been routinely analyzed. One of the reasons for this lack of research is because neoclassical urban land economics models underlie, in some cases implicitly, most of the available literature on the topic. In this theory, land values converge to their long-term trends regardless of short-term shocks. We build upon post-Keynesian monetary circuit theory to design a spatial urban economics testing framework, building upon the contributions of Abramo (2011) and Alfonso (2007, 2017). In this tradition, short-term shocks have long-term effects on the spatial distribution of land values due to radical uncertainty. Our case study is Transmetro, a Bus Rapid Transit (BRT) project in Barranquilla (Colombia). We use static and dynamic panel-estimation to test the short-run dynamics of spatial land price adjustments during 2000-2010, including the construction and delivery years 2006-2010. This case study offers a good assessment opportunity because of featuring prominent problems and delays. We find volatile short-run adjustments that run counter to neoclassical predictions, while resembling spatial land price adjustments exposed to radical uncertainty.