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Decentralized markets and the emergence of housing wealth inequality

Guerrero, OA; (2020) Decentralized markets and the emergence of housing wealth inequality. Computers, Environment and Urban Systems , 84 , Article 101541. 10.1016/j.compenvurbsys.2020.101541. Green open access

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Abstract

Recent studies suggest that the traditional determinants of housing wealth are insufficient to explain its current inequality levels. Thus, they argue that efforts should focus on understanding institutional factors. From the perspective of complex adaptive systems, institutions are more than the ‘the rules of the game’, they also consider the interaction protocols or the ‘algorithm’ through which agents engage in socioeconomic activities. By viewing markets as complex adaptive systems, I develop a model that allows estimating how much housing wealth inequality is attributable to the market institution. It combines virtues from two different modeling traditions: (1) the microeconomic foundations from overlapping-generation models and (2) the explicit interaction protocols of agent-based models. Overall, the model generates prices and housing inequality endogenously and from bottom-up; without needing to impose assumptions about the aggregate behavior of the market (such as market equilibrium). It accounts for economic and institutional factors that are important to housing consumption decisions (e.g., wages, consumption of goods, non-labor income, government transfers, taxes, etc.). I calibrate the model with the British Wealth and Assets Survey at the level of each individual household (i.e., ~25 million agents). By performing counter-factual simulations that control for data heterogeneity, I estimate that, in the United Kingdom, the decentralized protocol interaction of the housing market contributes with one to two thirds of the Gini coefficient. I perform policy experiments and compare the outcomes between an expansion in the housing stock, a sales tax, and an inheritance tax. The results raise concerns about the limitations of traditional policies and call for a careful re-examination of housing wealth inequality.

Type: Article
Title: Decentralized markets and the emergence of housing wealth inequality
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.compenvurbsys.2020.101541
Publisher version: https://doi.org/10.1016/j.compenvurbsys.2020.10154...
Language: English
Additional information: Copyright © 2020 The Author(s). Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
Keywords: Housing, Inequality, Agent-based model, Life cycle, Micro-data
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10116881
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