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Evolution of Land Values in Cracow during the Transformation of the Polish Economy

David Dale-Johnson and W. Jan Brzeski
The transformation of the Polish economy during the early 1990s offers an unusual opportunity to examine the evolution of a new market for urban land. There has been a great deal of theoretical and empirical research focused on urban land value functions that has derived from the work of Muth (1969) and Mills (1972). Data sets permitting the empirical testing of theoretical structures are few but two sources for the city of Chicago have resulted in numerous studies focusing on this city. These sources are Hoyt (1933) and "Olcott's Land Values Blue Book of Chicago" which together provide actual and estimated values for tracts of land in Chicago at various intervals from 1830 to 1990. These sources are discussed and the data analyzed using non-parametric techniques in McMillen (1996). Most studies have found that a fourth-order polynomial is required to explain land values and that as time as passed, the land value function has become more complex as transportation systems and neighborhoods have evolved and employment nodes and shopping districts have multiplied. For example, McDonald and Bowman (1979) find that explanatory power declines over time and that more complex functional forms do a better job of explaining variation in land price perhaps reflecting increasing complexity of the urban environment and the increasing likelihood that distance from the city center provides an inadequate explanation. In this study, we begin an analysis of land values in Cracow using parametric techniques in order to benchmark our outcomes against the results of prior studies in developed market economies. At this stage, we do not address the issue of selectivity bias or a dynamic approach. In the next section, we summarize political and economics events leading up to, as well as the strategy implemented by the leadership in Poland to privatize land markets. In the third and fourth sections, we discuss the theory and describe the data set which has been accumulated. We follow that with our analysis, results and ideas for future research.