Premium Effect and Compensation Mechanism for Installing Elevators in Old Residential Buildings in China

Abstract

Xianghong Zhou, Qiong Liu and Weidong Yang

The installation of elevators in old residential buildings in China has become a pressing issue, with significant implications for property values, resident well-being, and social equity. We provide empirical research on the effects of cost sharing, compensation, and residential building price premiums after elevators are installed in old residential buildings in China. Utilizing data on 2,133 resale properties in Shanghai's Hongkou District from February 25 to March 3, 2020, we find that when the government subsidizes households more than it does elevator service providers, the decision-making strategies of households and elevator service providers are consistent, and the price of the residential building increases significantly after the elevator is installed. Furthermore, our results indicate the third floor is the critical floor for cost-benefit conversion after incorporating various factors that determine premium pricing for different floors into the subsidy policy. Consequently, the households on floors below the third floor should be adequately compensated because they are impacted the least in terms of the convenience and price premiums of installing elevators, and households on floors from the third floor up should share the cost of installation. Grounded in evolutionary game theory, this study highlights the necessity of considering the spatial heterogeneity of quasi-public goods and formulating a scientific and effective compensation mechanism when installing elevators in aging buildings.

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