A Hedonic Approach
New Horizons in Environmental Economics series
Appendix 6: Two-region general equilibrium model
We assume that the society is composed of two regions i(iϭ1, 2), homogeneous households have the utility function u(·) whose components are a composite good, land and environmental amenity, xi, l h, zi. A household i maximizes its utility [*]: max u(xi , l ih, zi ) h xi,li under the constraints of: wi ϩsϭxi ϩr ih lih (A6.1) where wi, rih, s are wage in region i, housing land rent in region i, and endowment, respectively: sϭ/N (A6.2) where is total proﬁts of ﬁrms and land owners; and N is the number of households as well as workers in the society. From the ﬁrst-order condition, ul ϭѨu/Ѩl, ux ϭѨu/Ѩx ux rih ϭul wi ϩsϭxi ϩril lih, we can get following demand functions: xi ϭxi(wi ϩs, rih, zi ) lih ϭlih(wi ϩs, rih, zi ). Thus the utility is: V(wi ϩs, rih, zi )ϭ u[xi(wi ϩs, rih, zi ),lih(wi ϩs, rih, zi ),zi]. (A6.6) (A6.4) (A6.5) (A6.3) There are two types of ﬁrm in the society. Each type of ﬁrm produces the same composite good by regional speciﬁc technology using the same 144 Appendix 6 145 resources of worker, ﬁrm’s land and amenity of environment, ni, l if, zi. They produce Xi. They maximize their proﬁt [*]: max ⌸ϭXi Ϫ(wi ni ϩri l if ) f ni,li (A6.7) under the production technological constraints: Xi ϭXi(ni,l if, zi ). Demand functions of worker and land are: ni ϭni(wi,...
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