Radical uncertainty and the effect of transport infrastructure on land prices

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 eco-nomics 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.

JEL Classification: B41; B52; E12; R30.