Estimation of the bid rent function with the usage decision model

This paper examines whether the bid rent function model is a valid description of a mechanism of the urban land market. We estimate the function that decides land usage and price using the full information maximum likelihood (FIML). It finds that land usage on average follows the rule that is consistent with the bid rent function model: whichever usage outbids the others occupies the land. However, the evidence also suggests that there is a systematic departure from the model. Namely, the distance from the second city center may directly affect land usage even though it is not reflected in land prices.