JOURNAL OF URBAN ECONOMICS 10, 369-374 (198 1) Variable Elasticity of Substitution in Urban Housing Production ROLFFARE ANDBONGJOONYOON' The Department of Economrcs. Southern Illmors Universr fy, Carbondale. Illinois 62901 Received September 8, 1980; revised October 15, 1980 The notion that the elasticity of substitution in urban housing production should vary with changing intensities of land use seems to be realistic and theoretically vrable. Hence the variable elasticity of substitution production function has been proposed by some authors. However, it suffers from a serious shortcoming that the elasticity of substitution should not exceed unity. To allow for flexibility in the range of the elasticity of substitution, we explore a general functional form for the housing production function, the weak disposability of inputs production function in partrcu- lar. Our empirical findings, based on the Santa Clara County single-family housing data, provide evidence that this general function is a more accurate specification of urban housing production than the variable elasticity of substitution function. 1. INTRODUCTION In a recent article, Sirmans et al. [3] have shown the importance of an appropriate choice of a production function to explain urban spatial struc- ture and land-use patterns. The authors were the first to use the variable elasticity of substitution (VES) production function in the urban housing production literature. Their results indicate that the VES production func- tion is a “more correct” specification of the production relationship than the constant elasticity of substitution (CES) production function. The purpose of this paper is to investigate further urban housing produc- tion with a more general function which allows the elasticity of substitution to vary with factor intensities. The function used here is the WDI (weak disposability of inputs) production function, which is a generalization of the VES, CES and CD (Cobb-Douglas) production functions. The use of a WDI-function removes a restriction imposed by the VES-function, namely that the elasticity of substitution is less than or equal to one (see (4)). It is shown in this paper that a special case of the WDI-function is a “better” model of urban housing production than the VES-function based on the data used by Sirmans et al. ‘The authors sincerely thank Professor Cheng F. Lee and a referee for their suggestions and helpful comments. Support of this study by the Coal Extraction and Utilization Center of Southern Illinois University is gratefully acknowledged. 369 0094-1190/8 l/060369-06$02.00/0 Copyneht 0 I98 I by Academic Press. Inc All rights of reproductmn in any form reserved.