ALLOCATION, EXTERNALITIES, AND BUILDING VALUE

Externalities generally are viewed as impacting land values rather tha n building values. Yet when locational obsolescence is attributed to e xternalities, the implication is that externalities impact primarily o n building values. The presence of negative externalities generally do es not determine whether a building suffers from locational obsolescen ce; the more general cause is a misallocation of land. At the market a llocation, there is no locational obsolescence even in the presence of an externality, while at the optimal allocation only an externality c an produce locational obsolescence. Because locational obsolescence ca n exist without externalities, an externality is not a necessary condi tion for locational obsolescence. Because an externality can be presen t without accompanying locational obsolescence, an externality also is not a sufficient condition for the existence of locational obsolescen ce.