nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2005‒07‒18
fourteen papers chosen by
Steve Ross
University of Connecticut

  1. Lines of Credit and Consumption Smoothing: The Choice between Credit Cards and Home Equity Lines of Credit By Shubhasis Dey
  2. AGGLOMERATION AND THE ADJUSTMENT OF THE SPATIAL ECONOMY By Pierre Philippe Combes; Gilles Duranton; Henry G. Overman
  3. Young and Out: An Application of a Prospects-Based Concept of Social Exclusion By Raaum, Oddbjørn; Rogstad, Jon; Røed, Knut; Westlie, Lars
  4. On the Use of Racial Profiling as a Law Enforcement Tool By Bunzel, Helle; Marcoul, Philippe
  5. Growth, Technological Interdependence and Spatial Externalities: Theory and Evidence. By ERTUR, Cem; KOCH, Wilfried
  6. Do External Knowledge Spillovers Induce Firms’Innovations? Evidence from Slovenia By Jože P. Damijan; Andreja Jaklic; Matija Rojec
  7. Correcting Second Home Equity in HRS/AHEAD: the Issues, a Method, and Preliminary Results By Honggao Cao; Thomas Juster
  8. The Sensitivity of Homeowner Leverage to the Deductibility of Home Mortgage Interest By Patric H. Hendershott; Gwilym Pryce
  9. What Do Parents Value in Education? And Empirical Investigation of Parents%u2019 Revealed Preferences for Teachers By Brian A. Jacob; Lars Lefgren
  10. Location Choice of Multinational Companies in China: Korean and Japanese Companies By Sung Jin Kang,; Hongshik Lee
  11. Specialization and Geographical Concentration in East Asia: Trend and Industry Characteristics By Soon-Chan Park
  12. Geographic Concentration and Industry Characteristics: An Empirical Investigation of East Asia By Soon-Chan Park,; Hongshik Lee,; Mikyung Yun
  13. Modelling Households' Savings and Dwellings Investment - A Portfolio Choice Approach By Gabor Vadas
  14. The Performance of Real Estate Portfolios: A Simulation Approach By WILLIAM N. GOETZMANN; JEFFREY D. FISHER

  1. By: Shubhasis Dey
    Abstract: The author models the choice between credit cards and home equity lines of credit (HELOCs) within a framework where consumers hold lines of credit as instruments of consumption smoothing across state and time. Flexible repayment schemes for lines of credit induce risk-averse consumers with sufficiently high discount rates to underinsure and hold lines of credit instead as a buffer, even when they have access to full and fair insurance markets. Weighing the fixed upfront fees and higher default costs of HELOCs against the advantages of low and income-tax-deductible interest payments, the author finds a threshold level of potential borrowing belowwhich consumers prefer to use credit cards exclusively. Above that threshold, consumers decide touse HELOCs and consolidate all outstanding credit card debt into them; however, a rising probability of default and the resulting loss of equity in the home will put an upper bound on the potential HELOC borrowing that will prevent full debt consolidation.
    Keywords: Credit and credit aggregates
    JEL: D1 D81
    Date: 2005
  2. By: Pierre Philippe Combes; Gilles Duranton; Henry G. Overman
    Abstract: We consider the literatures on urban systems and New Economic Geography to examine questions concerning agglomeration and how areas respond to shocks to the economic environment. We first propose a diagrammatic framework to compare the two approaches. We then use this framework to study a number of extensions and to consider several policy relevant issues.
    Keywords: Urban systems
    JEL: R00
    Date: 2005–04–20
  3. By: Raaum, Oddbjørn (The Ragnar Frisch Centre for Economic Research); Rogstad, Jon (Institute for Social Research); Røed, Knut (The Ragnar Frisch Centre for Economic Research); Westlie, Lars (The Ragnar Frisch Centre for Economic Research)
    Abstract: We develop a forward-looking empirical concept of social exclusion based on the estimated transition probabilities from a random effects multinominal logit-model. Youths are considered socially excluded if they are currently outside school/work and have a low predicted probability of re-entering in the near future. Implemented on extraordinary rich event history data of compulsory school graduates, we estimate social exclusion among Norwegian youths and find that social exclusion is (i) non-cyclical; (ii) rare among teen-agers, except for immigrant children and individuals with a disadvantaged family background; (iii) more prevalent among young adults in their early twenties; and (iv) independent of gender
    Keywords: social exclusion; multinominal logit-model; Youths;
    JEL: I29
    Date: 2005–05–30
  4. By: Bunzel, Helle; Marcoul, Philippe
    Abstract: The “End Racial Profiling Act of 2001” (ERPA) states that “no law enforcement agent or law enforcement agency shall engage in racial profiling” and mandates states to “collect detailed data on stops, searches, seizures, and arrests.” We develop a stylized dynamic model of highway policing to study the long-run consequences of ERPA. In the model, color-neutral police officers receive incentives to arrest criminals, but face a per stop cost which increases when the racial mix of the interdicted differs from the racial composition of the population. Incarceration rates are defined to be racially “fair” if the racial composition of the prison and criminal population is identical. The model predicts that the long-term racial composition of the prison population may not be fair and that ERPA may increase fairness. Ceteris paribus, however, ERPA may lower efficiency (the number of criminals in jail). Finally, we characterize and compare the incentive schemes for crime fighting that a government would optimally set with and without ERPA.
    Date: 2005–07–14
  5. By: ERTUR, Cem (LEG - CNRS UMR 5118 - Université de Bourgogne); KOCH, Wilfried (LEG - CNRS UMR 5118 - Université de Bourgogne)
    Abstract: This paper presents a theoretical model, based on the neoclassical growth literature, which explicitly takes into account technological interdependence among economies and examines the impact of location and neighborhood effects in explaining growth. Technological interdependence is supposed working through spatial externalities. The magnitude of the physical capital externalities at steady state, which is usually not identified in the literature, is estimated using a spatial econometric specification explaining the steady state income level. This spatially augmented Solow model yields a conditional convergence equation which is characterized by parameter heterogeneity. A locally linear spatial autoregressive specification is then estimated.
    Keywords: Conditional convergence ; technological interdependence ; spatial externalities ; spatial autocorrelation ; parameter heterogeneity ; locally linear estimation
    JEL: C14 C31 O4
    Date: 2005–07
  6. By: Jože P. Damijan; Andreja Jaklic; Matija Rojec
    Abstract: The paper analyses whether, and to what extent, firm’s ability to innovate is induced by firm’s own R&D activity and to what extent by factors external to firm. It first estimates the impact of firms' internal R&D capital and external R&D spillovers on firms' innovation activity within an integrated dynamic model. In the second step, we then estimate the impact of firms'innovations on firms’ productivity growth. Using the firm level data on innovation activity combined with firms' financial data for a large sample of Slovenian firms in the period 1996-2002, the paper produces three main findings. First, firm’s own R&D expenditures as well as external knowledge spillovers, such as national and international public R&D subsidies, foreign ownership and intra-sector innovation spillovers do enhance firm’s ability to innovate. Second, innovations as a result of firm’s R&D do contribute substantially to firm’s total factor productivity growth. And third, foreign ownership has a double impact on firm’s TFP growth - it first enhances firm’s ability to innovate and then it additionally contributes to firm’s TFP growth via superior organization techniques and other channels of knowledge diffusion.
    Keywords: innovation, external knowledge spillovers, FDI, Slovenia
    JEL: D24 F14 F21
  7. By: Honggao Cao (University of Michigan); Thomas Juster (University of Michigan)
    Abstract: Second home equity is an important component of both housing equity and net worth for the old population. It has been covered, implicitly or explicitly, across all waves of HRS and AHEAD surveys. But due to a skip-pattern error, not all households with second homes were asked detailed questions about current market value, amount of mortgage, etc... The negative impact of the inconsistent treatment of second home on the estimation of housing equity and net worth is substantial. When the second home information is not collected for all the households who own second homes (as in AHEAD 1995 and HRS 1996), the second home equity measure based on the partial data is likely to suffer from selection bias, rendering vulnerable both measures of total housing equity and total net worth. This paper reports on an imputation method to correct for this bias that we demonstrate and find effective.
    Date: 2004–06
  8. By: Patric H. Hendershott; Gwilym Pryce
    Abstract: Mortgage interest tax deductibility is needed to treat debt and equity financing of homes equally. Countries that limit deductibility create a debt tax penalty that presumably leads households to shift from debt toward equity financing. The greater the shift, the less is the tax revenue raised by the limitation and smaller is its negative impact on housing demand. Measuring the financing response to a legislative change is complicated by the fact that lenders restrict mortgage debt to the value of the house (or slightly less) being financed. Taking this restriction into account reduces the estimated financing response by 20 percent (a 32 percent decline in debt vs a 40 percent decline). The estimation is based on 86,000 newly originated UK loans from the late 1990s.
    JEL: H2 H3
    Date: 2005–07
  9. By: Brian A. Jacob; Lars Lefgren
    Abstract: This paper examines revealed parent preferences for their children's education using a unique data set that includes the number of parent requests for individual elementary school teachers along with information on teacher attributes including principal reports of teacher characteristics that are typically unobservable. We find that, on average, parents strongly prefer teachers that principals describe as good at promoting student satisfaction and place relatively less value on a teacher's ability to raise standardized math or reading achievement. These aggregate effects, however, mask striking differences across family demographics. Families in higher poverty schools strongly value student achievement and are essentially indifferent to the principal's report of a teacher's ability to promote student satisfaction. The results are reversed for families in higher-income schools.
    JEL: I2
    Date: 2005–07
  10. By: Sung Jin Kang, (Korea University); Hongshik Lee (Korea Institute for Internation Economic Policy)
    Abstract: By using aggregate and firm level data of Korean and Japanese forign affiliates in Chin, we investigate the recent FDI trends and the determinants of location choice. The comparison of the FDI trends of Japanese and Korean companies show that Korean companies are concentrated into China, especially in three regions of northeast of China. The conditional logit estimation results differ between Korean and Japanese companies. Even though agglomeration variable is shown to be positive and significant for two countries, regional income is shown to be positive for Japan but negative for Korea. For Korean companies, the college graduate, the railway variables and trade share are shown to be positive and significant but other variables such as the number of economic zones and the share of production are shown to be negative. In addition, the distance from Korea and the ethnicity factor might play more significant role sin FDI decisions as well. Thus, we can interpret that the main determinants such as agglomeration, vertical, horizontal FDI and infrastructure variables play significant roles in explaining recent FDI location. However, explanatory power of those variables above for location decision of Japanese companies is not significant.
    Keywords: location choice, multinationals, agglomeration, conditional logit
    JEL: F11 F12
    Date: 2004–12
  11. By: Soon-Chan Park (Korea Institute for International Economic Policy)
    Abstract: In this paper, we examine changes in patterns of specialization and geographical concentration in East Asia. we found that relative specialization, on average, has decreased in East Asia, implying that the economic structures of East Asian countries have been converging. Investigation in the industrial characteristics, it is shown that the differences in economies of scale between east Asian countries have been greatly reduced over time. I addition, we also identified that geographical concentration has increased. During the 1989/91-1995/96 period, 17 industries experience the increase of geographical concentration more than 10 percent, while only three industries show the decline in geographical concentration more than 10 percent. The industries with increased concentration are characterized by above the medium level of economies of scale, capital and skill intensity. In comparison with the United States and the EU, East Asian countries show a low level of specialization and concentration. Thus, if East Asia countries follow the development patterns of the more integrated regions, a regional trading agreement in this region may lead to further specialization and concentration.
    Keywords: Economic geography, specilization, industrial concentration
    JEL: C21 F14 F15
    Date: 2003–12
  12. By: Soon-Chan Park, (Korea Institute of International Economic Policy); Hongshik Lee, (Korea Institute of International Economic Policy); Mikyung Yun (Korea Institute of International Economic Policy)
    Abstract: In this paper we assess the geographic concentration of 26 manufacturing industries over the 1986-1997 period, based on annual employment data for 8 East Asian countries. The average level of geographic concentration, in the relative term, has decreased continuously during the period in this regio. We show that intra-industry linkage and inter-industry linkage have a positive and significant influence on relative concentration. Furthermore, the industries with large demand bias, high scale intensity and low capital intensity are geographically concentrated. Finally, we find the evidence that regional integration in East Asia will lead to agglomeration of industries.
    Keywords: economic integration, location of industries, economic geography, industry characteristics
    JEL: F12 F13
    Date: 2004–12
  13. By: Gabor Vadas (Magyar Nemzeti Bank)
    Abstract: A house is generally considered as a 'roof over one's head', however, housing can be regarded as an investment or asset. Our paper focuses on this function of dwellings and develops a stochastic portfolio choice model for the housing market, which is easy to incorporate into medium and large-scale macro models. Theoretical results suggest that house prices move in line with households' income, although house prices have a higher variance than income does. On the other hand the positive correlation between the return on housing investment and consumption not only implies positive relationship between the portfolio share of housing investment and excess return but also renders the housing wealth inappropriate in consumption smoothing. We use UK data to test these theoretical implications of the model. In this case, empirical results strengthen the model framework.
    Keywords: households’ behaviour, housing investment, saving, portfolio decision, house price
    JEL: E
    Date: 2005–07–13
  14. By: WILLIAM N. GOETZMANN (Yale School of Management, International Center for Finance); JEFFREY D. FISHER (Indiana University)
    Abstract: In this paper we simulate the performance of real estate portfolios using cash flows from commercial properties over the period 1977 Q4 through 2004 Q2. Our methodology differs from analyses that rely upon historical time-weighted rates of return on property. We relax implicit rebalancing and mark to market assumptions inherent in time-series analysis. We use the distribution of internal rates of return to analyze the performance distribution of commercial property investment. We examine the performance of real estate in the context of portfolios of stocks and bonds over the same period.
    Keywords: Asset Allocation, Real Estate
    JEL: G11 R33
    Date: 2005–07–15

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