nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2006‒09‒03
twelve papers chosen by
Steve Ross
University of Connecticut

  1. Gentrification and Neighborhood Housing Cycles: Will America’s Future Downtowns Be Rich? By Jan K. Brueckner; Stuart S. Rosenthal
  2. Commuting, Externalities, and the Geographical Sizes of Metropolitan Areas By Eckhardt Bode
  3. Spatial Hedonics and the Willingness to Pay for Residential Amenities By Kenneth A. Small; Seiji Steimetz
  4. A Tale of Two Stadiums: Comparing the Economic Impact of Chicago’s Wrigley Field and U.S. Cellular Field By Victor Matheson; Robert Baade; Mimi Nikolova
  5. Smoke Signals: Adolescent Smoking and School Continuation By Philip J. Cook; Rebecca Hutchinson
  6. Why Butterflies Don’t Leave. Locational behaviour of entrepreneurial firms By Erik Stam
  7. Externalities and Fundamental Nonconvexities : A Reconciliation of Approaches to General Equilibrium Externality Modelling and Implications for Decentralization By Murty, Sushama
  8. Airline Schedule Competition: Product-Quality Choice in a Duopoly Model By Jan K. Brueckner; Ricardo Flores-Fillol
  9. Social Networks and the Convergence of Population Attributes: A Generalization By Jan K. Brueckner; Oleg Smirnov
  10. Irreversible Investment, Real Options, and Competition: Evidence from Real Estate Development By Laarni Bulan; Christopher J. Mayer; C. Tsuriel Somerville
  11. Do School-to-Work Programs Help the “Forgotten Half”? By David Neumark; Donna Rothstein
  12. Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect By Kenneth A. Small; Kurt Van Dender

  1. By: Jan K. Brueckner (Department of Economics, University of California-Irvine); Stuart S. Rosenthal (Departament of Economics, Syracuse University)
    Abstract: This paper identifies a new factor, the age of the housing stock, that affects where high- and low-income neighborhoods are located in U.S. cities. High-income households, driven by a high demand for housing services, will tend to locate in areas of the city where the housing stock is relatively young. Because cities develop and redevelop from the center outward over time, the location of these neighborhoods varies over the city’s history. The model predicts a suburban location for the rich in an initial period, when young dwellings are found only in the suburbs, while predicting eventual gentrification once central redevelopment creates a young downtown housing stock. Empirical work indicates that if the influence of spatial variation in dwelling ages were eliminated, longstanding central city/suburban disparities in neighborhood economic status would be reduced by up to 50 percent. Model estimates further predict that between 2000 and 2020, central-city/suburban differences in economic status will widen somewhat in smaller cities but narrow sharply in the largest American cities as they become more gentrified.
    Date: 2005–09
  2. By: Eckhardt Bode
    Abstract: The paper proposes an econometric approach for quantifying jointly the geographical scope of commuting as well as the various forms of agglomeration economies originating from metropolitan centers. Adopting an urban economics perspective, and using land prices to measure their aggregate effects, the approach estimates the geographical reach of commuting and urban externalities from a hierarchical system of gradient functions. The results for West German NUTS3 regions indicate that metropolitan areas may be larger than suggested by MSA classifications based on commuting only. Metropolitan subcenters are found to enlarge metropolitan areas significantly.
    Keywords: urban economics, commuting, agglomeration economies, land price gradient, urban fringe, Germany
    JEL: C21 C52 R14
    Date: 2006–08
  3. By: Kenneth A. Small (Department of Economics, University of California-Irvine); Seiji Steimetz (Department of Economics, California State University-Long Beach)
    Abstract: Housing rents and prices may be influenced not only by the characteristics of the house in question, but by those of nearby houses. Recent work has shown how this effect can be included in a hedonic housing-price equation by using a spatial autoregression model that includes “spatial lags” (prices of nearby properties) in the specification. But if there is a change that influences all prices simultaneously, such as a uniform pollution reduction, what role do spatial lags play in measuring the welfare effects arising from this change? One suggestion in the literature is that the full marginal value of an improvement in air quality is given by the reduced form equation of the autoregressive model, effectively applying a “spatial multiplier” to the directly-measured implicit price of air pollution. We show that this suggestion is correct only if the spatial price interdependence arises from technological spillovers, such that my utility depends on actions my neighbor takes as a result of that neighbor’s property value (e.g. better maintenance). In this case simply estimating a model without spatial lags may also provide a reasonably accurate welfare measure. On the other hand, the spatial inter-dependence could be from pecuniary spillovers, e.g. when real-estate agents use prices of nearby houses to estimate the true equilibrium price of a house being sold. In that case, correct benefit estimation requires the use of spatial lags to separate these pecuniary effects from the implicit prices of pollution. And because those implicit prices alone carry all the required information for benefit estimates, applying a spatial multiplier to them would overestimate benefits.
    Keywords: Spatial autocorrelation; spatial lag; welfare; willingness to pay; hedonic price function
    Date: 2006–06
  4. By: Victor Matheson (Department of Economics, College of the Holy Cross); Robert Baade (Department of Economics and Business, Lake Forest College); Mimi Nikolova (Department of Economics and Business, Lake Forest College)
    Abstract: Supporters of sports stadium construction often defend taxpayer subsidies for stadiums by suggesting that sports infrastructure can serve as an anchor for local economic redevelopment. Have such promises of economic rejuvenation been realized? The City of Chicago provides an interesting case study on how a new stadium, U. S. Cellular Field, has been integrated into its southside neighborhood in a way that may well have limited local economic activity. This economic outcome stands in stark contrast to Wrigley Field in northern Chicago which continues to experience a synergistic commercial relationship with its neighborhood.
    Keywords: sports, sports, stadiums, development, baseball, Chicago, economic impact
    JEL: L83 O18 R53
    Date: 2006–08
  5. By: Philip J. Cook; Rebecca Hutchinson
    Abstract: This paper presents an exploratory analysis using NLSY97 data of the relationship between the likelihood of school continuation and the choices of whether to smoke or drink. We demonstrate that in the United States as of the late 1990s, smoking in 11th grade was a uniquely powerful predictor of whether the student finished high school, and if so whether the student matriculated in a four-year college. For economists the likely explanation for this empirical link would be based on interpersonal differences in time preference, but that account is called in question by our second finding -- that drinking does not predict school continuation. We speculate that the demand for tobacco by high school students is influenced by the signal conveyed by smoking (of being off track in school), one that is especially powerful for high-aptitude students. To further develop this view, we present estimates of the likelihood of smoking as a function of school commitment and other, more traditional variables. There are no direct implications from this analysis for whether smoking is in some sense a cause of school dropout. We offer some speculations on this matter in the conclusion.
    JEL: I12 I2
    Date: 2006–08
  6. By: Erik Stam
    Abstract: Entrepreneurship is an important process in regional economic development. Especially the continued growth of a minority of new firms is of major significance to the commercialization of new ideas and employment growth. These growing new firms are transforming on a structural basis, like caterpillars turning into butterflies. However, like butterflies they are at risk to leave their region of origin for better places. This paper analyses how and why the spatial organization of firms develops subsequent to their start-up. A new conceptual framework and an empirical study of the life course of entrepreneurial firms are used to construct a theory on their locational behavior that explains that behavior as the outcome of a process of initiatives taken by entrepreneurs, enabled and constrained by resources, capabilities and relations with stakeholders within and outside of the firm. This study shows that entrepreneurs decide whether or not to move their firm outside of their region of origin for different reasons in distinct phases of the firm life course. Being embedded in social networks, for example, is an important constraint on locational behavior during the early life course of a firm, but over time this becomes less important and other mechanisms like sunk costs increasingly determine the locational behavior of fast-growing firms. The development of the spatial organization is also of major importance: when a multilocational spatial organization has been realized, it is much easier to move the headquarters to another region. The spatial organization of entrepreneurial firms co-evolves with the accumulation of their capabilities. A developmental approach incorporating evolutionary mechanisms and recognizing human agency provides new insights into the age-old study of firm location.
    Keywords: location, location behavior, spatial organization, theory of the firm, entrepreneurial firms, entrepreneurship, firm growth, regional economic development
    JEL: D21 L14 L22 M13 R11 R30
    Date: 2006–08
  7. By: Murty, Sushama (Department of Economics, University of Warwick)
    Abstract: By distinguishing between producible and nonproducible public goods, we are able to propose a general equilibrium model with externalities that distinguishes between and encompasses both the Starrett [1972] and Boyd and Conley [1997] type external effects. We show that while nonconvexities remain fundamental whenever the Starrett type external effects are present, these are not caused by the type discussed in Boyd and Conley. Secondly, we find that the notion of a “public competitive equilibrium” for public goods found in Foley [1967, 1970] allows a decentralized mechanism, based on both price and quantity signals, for economies with externalities, which is able to restore the equivalence between equilibrium and efficiency even in the presence of nonconvexities. This is in contrast to equilibrium notions based purely on price signals such as the Pigouvian taxes
    Keywords: externalities ; fundamental nonconvexities ; Clarke’s normal and tangent cones ; public goods
    JEL: D62 D50 H41
    Date: 2006
  8. By: Jan K. Brueckner (Department of Economics, University of California-Irvine); Ricardo Flores-Fillol (Departament d’Economia i d’Historia Economica, Universitat Autonoma de Barcelona)
    Abstract: This paper presents a simple model of airline schedule competition that circumvents the complexities of the spatial approach used in earlier papers. Consumers choose between two duopoly carriers, each of which has evenly spaced flights, by comparing the combinations of fare and expected schedule delay that they offer. In contrast to the spatial approach, the particular departure times of individual flights are thus not relevant. The model generates a number of useful comparative-static predictions, while welfare analysis shows that equilibrium flight frequencies tend to be inefficiently low.
    Date: 2006–04
  9. By: Jan K. Brueckner (Department of Economics, University of California-Irvine); Oleg Smirnov (Departments of Economics and Geography, San Diego State University)
    Abstract: Analysis of social interactions has recently become an important area of economic research, and the focus of researchers in this area has increasingly shifted toward dynamic models. In one recent contribution, Brueckner and Smirnov (2006) analyze the evolution of population attributes in an exceedingly simple model where an agent’s attributes at time t are equal to the average attribute value among his acquaintances. The pattern of acquaintances in the population is determined by the social network, and Brueckner and Smirnov (BS) explore the effect of network characteristics on the convergence of population attributes over time. They show that some simple sufficient conditions on the network structure ensure convergence to a “melting-pot” equilibrium, where attributes are uniform across agents. The present paper provides a generalization of BS’s analysis, allowing for a more general form of the rule governing the evolution of population attributes. The analysis shows that BS’s previous conclusions continue to hold under this generalization, while also providing a result that can be applied more generally to other models.
    Date: 2006–05
  10. By: Laarni Bulan; Christopher J. Mayer; C. Tsuriel Somerville
    Abstract: We examine the extent to which uncertainty delays investment and the effect of competition on this relationship using a sample of 1,214 condominium developments in Vancouver, Canada built from 1979-1998. We find that increases in both idiosyncratic and systematic risk lead developers to delay new real estate investments. Empirically, a one-standard deviation increase in the return volatility reduces the probability of investment by 13 percent, equivalent to a 9 percent decline in real prices. Increases in the number of potential competitors located near a project negate the negative relationship between idiosyncratic risk and development. These results support models in which competition erodes option values and provide clear evidence for the real options framework over alternatives such as simple risk aversion.
    JEL: D4 D52 E23 R3
    Date: 2006–08
  11. By: David Neumark (Department of Economics, University of California-Irvine); Donna Rothstein (Bureau of Labor Statistics, U.S. Department of Labor)
    Abstract: This paper tests whether school-to-work (STW) programs are particularly beneficial for those less likely to go to college in their absence—often termed the “forgotten half” in the STW literature. The empirical analysis is based on the NLSY97, which allows us to study six types of STW programs, including job shadowing, mentoring, coop, school enterprises, tech prep, and internships / apprenticeships. For men there is quite a bit of evidence that STW program participation is particularly advantageous for those in the forgotten half. For these men, among the strongest evidence is that mentoring and coop programs increase post-secondary education, and coop, school enterprise, and internship / apprenticeship programs boost employment and decrease idleness after leaving high school. There is less evidence that STW programs are particularly beneficial in increasing schooling among women in the forgotten half, although internship / apprenticeship programs do lead to positive earnings effects concentrated among these women.
    JEL: I28 J15 J24
    Date: 2005–10
  12. By: Kenneth A. Small (Department of Economics, University of California-Irvine); Kurt Van Dender (Department of Economics, University of California-Irvine)
    Abstract: We estimate the rebound effect for motor vehicles, by which improved fuel efficiency causes additional travel, using a pooled cross section of US states for 1966-2001. Our model accounts for endogenous changes in fuel efficiency, distinguishes between autocorrelation and lagged effects, includes a measure of the stringency of fuel-economy standards, and allows the rebound effect to vary with income, urbanization, and the fuel cost of driving. At sample averages of variables, our simultaneous-equations estimates of the short- and long-run rebound effect are 4.5% and 22.2%. But rising real income caused it to diminish substantially over the period, aided by falling fuel prices. With variables at 1997-2001 levels, our estimates are only 2.2% and 10.7%, considerably smaller than values typically assumed for policy analysis. With income at the 1997 – 2001 level and fuel prices at the sample average, the estimates are 3.1% and 15.3%, respectively.
    Keywords: Carbon dioxide; Fuel economy; Travel demand; Motor vehicle use; Rebound effect
    JEL: Q0 D5 R4 C2
    Date: 2006–03

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