I mean something like: in the equilibrium, all consumer surplus is extracted by rents.
I’m saying “on aggregate”, because it might often not be the case in individual cases; landlords are not capable of doing perfect price discrimination on individual basis, only at the level of something like neighborhoods, roughly speaking (people sort themselves into neighborhoods by income, so the landlords can price-discriminate based on “how affluent a neighborhood you wanna live in”; people also want as short commutes as possible, so you can price-discriminate based on the distance to the nearest megalopolis).
This is made very complicated by the distinction between land and land improvements, i.e. the bare plot of land itself, on one hand, and the infrastructure and buldings built on top of it, on the other. When I talk about lands and rents, I talk about the former. The supply of land improvements is somewhat elastic (you can build more floors); the supply of land itself is absolutely inelastic.
I unfortunately don’t wanna go into the mechanism by which consumer surplus is actually extracted by rents, because I already spent some time thinking and writing this comment and I originally wanted to do something else with my Saturday.
Viliam hinted at the mechanism: land is a positional good, so, to quote him, “as long as the life at some place is better than at other places, people will keep moving there.”
Compare with other positional goods: e.g. all sports clubs’ profits will eventually be extracted by players and their agents, unless a league instantiates a wage cap, precisely because players are a positional good: you don’t care how good your players are, you only care how good they are in comparison to other teams’ players.
In the same vein, you don’t care where you live, you care how far you are from the center of gravity of where other people live (roughly speaking).
Very few people rent bare plots of land. What’s rented (and what was referred to in the OP as rent)lot of land itself, on one hand, and the infrastructure and buldings built on top of it, on the
It seems like you are withdrawing to the motte. Very, few people rent bare plots of land. What’s rented (and what was referred to in the OP as rent) is rather floor space in apartments.
Why are you modeling land as a pure positional good, or even mostly positional? My goal isn’t to be closer to the middle of things than other people, I want to be near my friends and near my work. What’s positional about that, given that we can build up?
Right, but it doesn’t matter whether I’m closer than others (positional good) but whether I’m close enough that I can easily get between them (absolute good). If the world were a chessboard and only one person could live on each square then these would be the same, and it would turn into a positional good because of competition for desirable locations. But it isn’t, and we can build up enormously, which means lots of people can have a short commute and be near their friends.
I mean something like: in the equilibrium, all consumer surplus is extracted by rents.
I’m saying “on aggregate”, because it might often not be the case in individual cases; landlords are not capable of doing perfect price discrimination on individual basis, only at the level of something like neighborhoods, roughly speaking (people sort themselves into neighborhoods by income, so the landlords can price-discriminate based on “how affluent a neighborhood you wanna live in”; people also want as short commutes as possible, so you can price-discriminate based on the distance to the nearest megalopolis).
This is made very complicated by the distinction between land and land improvements, i.e. the bare plot of land itself, on one hand, and the infrastructure and buldings built on top of it, on the other. When I talk about lands and rents, I talk about the former. The supply of land improvements is somewhat elastic (you can build more floors); the supply of land itself is absolutely inelastic.
I unfortunately don’t wanna go into the mechanism by which consumer surplus is actually extracted by rents, because I already spent some time thinking and writing this comment and I originally wanted to do something else with my Saturday.
Viliam hinted at the mechanism: land is a positional good, so, to quote him, “as long as the life at some place is better than at other places, people will keep moving there.”
Compare with other positional goods: e.g. all sports clubs’ profits will eventually be extracted by players and their agents, unless a league instantiates a wage cap, precisely because players are a positional good: you don’t care how good your players are, you only care how good they are in comparison to other teams’ players.
In the same vein, you don’t care where you live, you care how far you are from the center of gravity of where other people live (roughly speaking).
It seems like you are withdrawing to the motte. Very, few people rent bare plots of land. What’s rented (and what was referred to in the OP as rent) is rather floor space in apartments.
Why are you modeling land as a pure positional good, or even mostly positional? My goal isn’t to be closer to the middle of things than other people, I want to be near my friends and near my work. What’s positional about that, given that we can build up?
What exactly do you think “things” are, if not your friends and your work?
Everyone wants to be close to their friends and their work; that’s precisely the “gravity” that moses was talking about.
Right, but it doesn’t matter whether I’m closer than others (positional good) but whether I’m close enough that I can easily get between them (absolute good). If the world were a chessboard and only one person could live on each square then these would be the same, and it would turn into a positional good because of competition for desirable locations. But it isn’t, and we can build up enormously, which means lots of people can have a short commute and be near their friends.