A Hedonic Approach
Appendix 7: Two-region two type of consumer general equilibrium model
A Hedonic Approach
We assume that there are two types of consumers who have the same utility function, that is, the same taste but different endowment. The total proﬁts from ﬁrms and land owners are distributed to consumers R and P by the following rate ␦: 1Ϫ␦. In this appendix, i stands for region and j stands for two types of consumers. We should determine how to collect the cost of the project from these consumers. There are three methods, that is, lump-sum tax from endowment, tax proportional to land rent, and tax proportional to income. It is widely acknowledged that tax distortion exists in the last two tax systems. Since we are not interested in the bias of the tax system in general, we use tax proportional to land rent price which may directly affect the capitalization ratio. These consumers maximize their utilities [*]: max ui(xij , lij , zi ), wi ϩsj ϭxij ϩr h (1ϩTirh)l h . ij ij h xi j ,li j (A7.1) T irh is a tax rate. The endowments are: sp ϭ␦/NP sR ϭ(1Ϫ␦)/NR ϭ (A7.2) (A7.3) ͚m ͚n r i i j h h f f ij ij l ij ϩri l i (A7.4) (A7.5) (A7.6) Vj [wi ϩsj, rh(1ϩT irh) zi ]ϵU [xij (⍀), r h (⍀), zi ] ij ij ⍀ϭ⍀[wi ϩsj, r h(1ϩTirh) zi ]. ij From the maximization of land owners’ proﬁts, we can get: r h ϭr hϭrifϭri . ij i (A7.7) Firms maximize their proﬁts [*], thus we can...
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