U-Shape Learning

Estimating Supply Functions for Residential Real Estate Attributes

“…Our results contribute to the literature on learning and hedonic price model in the following aspects. We are the first to find empirical evidence on the reduction in marginal cost of production in real asset markets, which is consistent with the concept of “learning‐by‐doing” (Fudenberg and Tirole 1983), learning and experience curves (Millians 2011), diffusion of knowledge and service (Nemet 2006, Rao and Kishore 2010, Millians 2011, Yeh and Rubin 2012) and organizational learning in dynamic business environments and evolving competitive forces (Pettigrew and Whipp 1991, Barlow and Jashapara 1998). Second, we identify new instruments for the supply equations taking into account heterogeneity in developers’ characteristics.…”

“…We use firm age ( developerage ) as a proxy for diffusion process and cumulative condominium units built by a firm up to the date of the current project ( totbuilt ) as a proxy for firms’ learning‐by‐doing. The marginal cost functions could be driven by unobserved knowledge of firm, which are correlated with stable and continuous learning process through experience (Fudenberg and Tirole 1983, Millians 2011), business age (Nemet 2006, Rao and Kishore 2010, Millians 2011, Yeh and Rubin 2012), and potential random learning levels under dynamic business environments/relationships and evolving competitive forces (Pettigrew and Whipp 1991, Barlow and Jashapara 1998).…”

“…Our results contribute to the literature on learning and knowledge diffusion. The learning curve implies that firms use knowledge diffusion and their soft business skills to reduce marginal costs of floor and area, and the diffusion process of knowledge could help experienced firms to reduce costs for taller buildings (Millians 2011). The “learning‐by‐doing” story (Fudenberg and Tirole 1983) is more relevant for the shape of the marginal cost curve of tall buildings (incremental floor costs), but less relevant in explaining marginal costs for expanding space (area) in buildings.…”