Endogenous Network Effect Generation through Political and Market Interaction : Evidence from Florida Home Values

This paper argues that government and market institutions when interacting with one another lead to the generation of a network effect in property value. Using data from the Florida Department of Revenue on market value assessments of homes in 17 counties, I find that living in a basic governing institution, an HOA, increases the market value of an average home by nearly 20% and creates larger neighborhoods. From this result, I estimate the size of the network effect as well as demonstrate through an agent-based model that given the size of this effect, the only way to exploit these gains is through market and political interaction. Using this model, I then show that the algorithmic framework necessary to maximize the welfare of those in the neighborhood is in fact the one present for both non-HOA and HOA situations given their average size