nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2007‒03‒31
thirty-six papers chosen by
Steve Ross
University of Connecticut

  1. Innovations in mortgage markets and increased spending on housing By Mark Doms; John Krainer
  2. Understanding foreclosures in Massachusetts By Ricardo Borgos; Prabal Chakrabarti; Julia Reade
  3. Is the Housing Bubble Collapsing? 10 Economic Indicators to Watch By Dean Baker
  4. Search in Cities By Zenou, Yves
  5. Housing in the Household Portfolio and Implications for Retirement Saving: Some Initial Finding from SOFIE By Grant Scobie; Trinh Le; John Gibson
  6. The Role of Housing Collateral in an Estimated Two-Sector Model of the U.S. Economy By Matteo Iacoviello; Stefano Neri
  7. Congestion Tolling with Agglomeration Externalities By Richard Arnott
  8. Does Secondary School Tracking Affect Performance? Evidence from IALS By Kenn Ariga; Giorgio Brunello
  9. Racial and Ethnic Discrimination in Local Consumer Markets: Exploiting the Army’s Procedures for Matching Personnel to Duty Locations By Deborah A. Cobb Clark; Heather Antecol
  10. Resources and Standards in Urban Schools By Stephen Machin; Sandra McNally; Costas Meghir
  11. Decomposing the Growth in Residential Land in the United States By Henry G. Overman; Diego Puga; Matthew Turner
  12. Network Circuity and the Location of Home and Work By Ahmed El-Geneidy; David Levinson
  13. Segregation and the Black-White Test Score Gap By Jacob Vigdor; Jens Ludwig
  14. Good Governance, Trade and Agglomeration By Candau, Fabien
  15. School drop-out and push-out factors in Brazil : the role of early parenthood, child labor, and poverty By Cardoso, Ana Rute; Verner, Dorte
  16. Principals as Agents? Investigating Accountability in the Compensation and Performance of School Principals By Sherrilyn M. Billger
  17. Ethnic Specialization and Earnings Inequality: Why Being a Minority Hurts but Being a Big Minority Hurts More By Martin Kahanec
  18. A model of spatial arbitrage with transport capacity constraints and endogenous transport prices By Andrew Coleman
  19. The Use of Road Infrastructure Data for Urban Transportation Planning: Issues and Opportunities By David Levinson; Feng Xie
  20. The Long-Term Consequences of Regional Specialization By Guy Michaels
  21. Jurisdictional Control and Network Growth By Feng Xie; David Levinson
  22. The Plant Size-Place Effect: Agglomeration and Monopsony in Labour Markets By Alan Manning
  23. Matching externalities and inventive productivity By Robert M. Hunt
  24. Identification of Peer Effects through Social Networks By Yann Bramoullé; Habiba Djebbari; Bernard Fortin
  25. Mortage interest rate dispersion in the euro area. By Christoffer Kok Sørensen; Jung-Duk Lichtenberger
  26. Shifts in Economic Geography and their Causes By Anthony J. Venables
  27. Economics of Road Network Ownership By Lei Zhang; David Levinson
  28. The Metropolitan Travel Survey Archive: A Case Study in Archiving By David Levinson; Ewa Zofka
  29. Determinants of Route Choice By Lei Zhang; David Levinson
  30. Fiscal Competition in Space and Time: An Endogenous-Growth Approach By Daniel Becker; Michael Rauscher
  31. Place Rank: A New Accessibility Measure By Ahmed El-Geneidy; David Levinson
  32. Sin City By Pieter A. Gautier; Michael Svarer; Coen N. Teulings
  33. Detecting the Breakdown of Traffic By Xi Zou; David Levinson
  34. The Economics of Transportation Network Growth By Lei Zhang; David Levinson
  35. Agent-Based Model of Price Competition and Product Differentiation on Congested Networks By Lei Zhang; David Levinson; Shanjiang Zhu
  36. Variation of Subjective Value of Travel Time on Freeways and Ramp Meters By Lei Zhang; Feng xie; David Levinson

  1. By: Mark Doms; John Krainer
    Abstract: Over the past several decades, innovations in the mortgage market have benefited consumers through a variety of channels. Innovations include the lowering of down payment requirements, increased flexibility in repayment schedules, and the reduction of costs associated with extracting equity from homes. To ascertain the ways in which these innovations would alter spending on housing, we develop a model of the home buying and mortgage choice decision that produces a number of testable implications. For instance, the lowering of down payment requirements should result in homeownership rates increasing, especially for households that are traditionally cash constrained. In fact, we show that between 1994 and 2004, the homeownership rate for young and low-income households rose sharply. Increased flexibility of repayment schedules should assist households in smoothing their housing consumption choices. Empirically, we document that households have increased the share of their income spent on housing by a substantial margin. The result is robust to the changing composition of households and also to regional location. Households that have been traditionally cash constrained have increased their housing expenditures but tend to have low mortgage rates, suggesting that these households may be financing their increased housing consumption with alternative, flexible mortgage products.
    Keywords: Mortgages ; Housing - Finance
    Date: 2007
  2. By: Ricardo Borgos; Prabal Chakrabarti; Julia Reade
    Abstract: Recent increases in foreclosure rates in New England and other parts of the United States are raising concerns. Distressful for individual borrowers and potentially destabilizing for their communities, the negative effects of foreclosures flow beyond the impact on housing markets and the financial consequences for creditors. Public officials, lenders, current and potential homeowners, community organizations, and other stakeholders are paying careful attention. ; In low- and moderate-income communities in New England, community leaders view current trends as especially worrisome. Among possible explanations, they stress the expansion of high-cost and subprime lending in these communities; and they cite aggressive or unscrupulous mortgage practices, and even mortgage fraud. Historically, however, other factors have been responsible for foreclosure activity. Regional job losses, rising interest rates, weak housing markets, and stretched borrowers facing negative life events are among the factors that usually push up foreclosure rates. And even critics of current mortgage lending practices acknowledge that homeownership is an effective assetbuilding strategy and that expanding the availability of credit to previously underserved population groups is a worthy goal. ; This paper describes recent trends in New England foreclosure rates, discusses possible causes, and looks at the prevalence of foreclosures in Massachusetts cities and towns with significant populations of low- and moderate-income households. It finds that the prevalence of higher cost lending is associated with higher foreclosure rates.
    Keywords: Mortgage loans - Massachusetts ; Mortgage loans - New England ; Foreclosure - Massachusetts ; Foreclosure - New England
    Date: 2007
  3. By: Dean Baker
    Abstract: This report describes the key economic indicators that indicate the state of the housing market. It gives up-to-date analysis of the available data sources, such as home sales, mortgage applications, vacancy rates and construction.
    Date: 2006–06
  4. By: Zenou, Yves
    Abstract: We develop different spatial search models in which a land market is embedded into a standard search matching framework. The link between the land and the labour market is realized through the average search intensity of unemployed workers. We first develop a simple model where search intensity is exogenous. Because of this assumption, only one urban pattern emerges in which the employed reside close to jobs and the unemployed at the periphery of the city. We then extend this benchmark model by assuming that workers' search intensity negatively depends on their residential distance to jobs. This leads to two urban-land use patterns where the unemployed workers either reside close to or far away from jobs. Finally, we consider the case where the unemployed workers endogenously choose their search intensity and we show that they search less, the further away they reside from jobs. Apart from the two previous urban patterns, there is a third equilibrium that emerges, which has a core-periphery structure. In each model, we explore the labour market outcomes (job creation, unemployment and wages) of the different urban land use patterns.
    Keywords: job search; search intensity; spatial mismatch; urban land use
    JEL: D83 J15 J41 R14
    Date: 2007–03
  5. By: Grant Scobie; Trinh Le; John Gibson (New Zealand Treasury)
    Abstract: Housing is an important sector of the economy. It has widespread implications for investment, banking, saving and employment. Home ownership has been linked to building social capital and a sense of community. Furthermore housing equity is a significant element of retirement accumulation for many New Zealanders. The Treasury maintains a programme of work related to housing, saving, wealth accumulation and retirement. The results of this contribute to Treasury's role in providing advice to the Minister and at the same time informing a wider group of external stakeholders. This paper uses unit record data from a new panel survey (SOFIE) to study housing wealth in household portfolios. It then estimates the rates of saving that would be needed to smooth consumption between pre- and post-retirement. Finally it explores the effect of some home equity withdrawal on the required saving rates. The main findings of this study are: • 60% of households are recorded as owning a home; • Almost half of home-owning households have no mortgage debt; • One in six households own residential investment property; • One in twelve households own a rental property; • Patterns of property ownership in New Zealand are similar to those in selected comparator countries; • Housing represents a major share of household wealth, and this share has risen in line with the increase in house prices; • The composition of household portfolios is comparable to other selected countries except for the USA ; • Empirical results indicate that even if households planned to draw down half of housing equity to support retirement income, the impact on the saving rate needed to smooth consumption would be modest.
    Keywords: Consumption smoothing, home equity, household portfolio, household wealth, housing, life cycle, retirement, savings
    JEL: D31 D91 J26 R21
    Date: 2007–03
  6. By: Matteo Iacoviello (Boston College); Stefano Neri (Banca D'Italia)
    Abstract: The ability of a two-sector model to quantify the contribution of the housing market to business fluctuations is investigated using U.S. data and Bayesian methods. The estimated model, which contains nominal and real rigidities and collateral constraints, displays the following features: First, a large fraction of the upward trend in real housing prices over the last 40 years can be accounted for by slow technological progress in the housing sector; second, residential investment and housing prices are very sensitive to monetary policy and housing demand shocks; third, the wealth effects from housing on consumption are positive and significant. The structural nature of the model allows identifying and quantifying the sources of áuctuations in house prices and residential investment and measuring the contribution of housing booms and busts to business cycles.
    Keywords: Housing, Collateral Constraints, Bayesian Estimation, Two-sector Models
    JEL: E32 E44 E47 R21 R31
    Date: 2007–03–25
  7. By: Richard Arnott (Boston College)
    Abstract: Consider an urban economy with two types of externalities, negative traffic congestion externalities and positive agglomeration externalities deriving from non-market interaction. Suppose that urban travel can be tolled, that non-market interaction cannot be subsidized, and that non-market interaction is stimulated by a reduction in travel costs. Then the optimal toll is below the congestion externality cost. This paper explores this line of reasoning.
    Keywords: congestion, congestion toll, agglomeration, externalities
    JEL: D60 H20 R40
    Date: 2007–03–26
  8. By: Kenn Ariga (Kyoto University); Giorgio Brunello (University of Padova, CESifo and IZA)
    Abstract: There is substantial cross-country variation in secondary school design, with some countries tracking students into different ability schools very early, and other countries with little or no tracking at all. Does tracking length affects school performance, as measured by standardized test scores? We use the international data from the International Adult Literacy Survey to estimate the relationship between the experienced tracking length and the performance in standardized cognitive test scores of young adults, aged between 16 and the mid-twenties. Our IV estimates suggest that the contribution of tracking to performance is positive and statistically significant: conditional on total years of schooling, one additional year spent in a track raises average performance by 3.3 to 3.4 percentage points, depending on the estimates.
    Keywords: tracking, secondary schools, efficiency
    JEL: I21 I28
    Date: 2007–02
  9. By: Deborah A. Cobb Clark; Heather Antecol
    Abstract: We use the exogenous assignment of Army personnel to duty locations to analyze the relationship between the characteristics of local markets and the propensity for consumers to be subjected to racial discrimination in their everyday commercial transactions. Overall, one in ten soldiers report that they or their families have experienced racial discrimination in finding non-government housing or in patronizing businesses in their local communities. Discrimination is related to a community’s demographic profile with white and Asian soldiers feeling more unwelcome in local businesses as the local population becomes heavily weighted towards other groups. Moreover, there is evidence that increased economic vulnerability in the community results in more housing discrimination amongst minorities. While the evidence that increased competition reduces consumer market discrimination is mixed, it is clear that discrimination is related to the nature of a soldier’s interaction with the local community.
    Keywords: Consumer Markets, discrimination, U.S. Military, Economics of Minorities
    JEL: J15 D12 D40
    Date: 2006–12
  10. By: Stephen Machin (University College London, CEE, CEP, London School of Economics and IZA); Sandra McNally (CEE, CEP, London School of Economics and IZA); Costas Meghir (University College London, CEE, Institute for Fiscal Studies and IZA)
    Abstract: Despite being central to government education policy in many countries, there remains considerable debate about whether resources matter for pupil outcomes. In this paper we look at this question by considering an English education policy initiative - Excellence in Cities - which has been a flagship policy aimed at raising standards in inner-city secondary schools. We report results showing a positive impact of the extra resources on school attendance and performance in Mathematics (though not for English) but, interestingly, there is a marked heterogeneity in the effectiveness of the policy. Its greatest impact has been in more disadvantaged schools and on the performance of middle and high ability students within these schools. A back-of-envelope cost-benefit calculation suggests the policy to be cost-effective. We conclude that additional resources can matter for children in the poorest secondary schools, particularly when building on a solid educational or ability background. However, small changes in resources have little or no effect on the ‘hard to reach’ children who have not achieved a sufficiently strong prior level.
    Keywords: education, resources, evaluation, disadvantage
    JEL: I21 H52 C52
    Date: 2007–03
  11. By: Henry G. Overman; Diego Puga; Matthew Turner
    Abstract: This paper decomposes the growth in land occupied by residences in the United States to give therelative contributions of changing demographics versus increases in the land area used by individualhouseholds. Between 1976 and 1992 the amount of residential land in the United States grew 47.5%while population only grew 17.8%. At first glance, this suggests an important role for per-householdincreases.However, the calculations in this paper show that only 24.3% of the growth in residential landarea can be attributed to State level changes in land per household. 37.5% is due to overall populationgrowth, 5.9% to the shift of population towards States with larger houses, 22.7% to an increase in thenumber of households over this period, and the remaining 9.5% to interactions between these changes.There are large differences across states and metropolitan areas in the relative importance of thesecomponents.
    Keywords: land use, population growth
    JEL: R14 O51
    Date: 2007–02
  12. By: Ahmed El-Geneidy; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: In an urban context people travel between places of residence and work destinations via transportation networks. Transportation studies that involve measurements of distances between residence and work locations tend to use Euclidean distances rather than Network distances. This is due to the historic difficulty in calculating network distances and based on assumptions that differences between Euclidean distance and network distance tend to be constant. This assumption is true only when variation in the network is minor and when self-selection is not present. In this paper we use circuity, the ratio of network to Euclidean distance, as a tool to better understand the choice of residential location relative to work. This is done using two methods of defining origins and destinations in the Twin Cities metropolitan region. The first method of selection is based on actual choice of residence and work locations. The second is based on a randomly selected dataset of origins and destinations in the same region. The findings of the study show circuity measured through randomly selected origins and destinations differ from circuity measured from actual origins and destinations. Workers tend to reside in areas where the circuity is lower, applying intelligence to their location decisions. We posit this because locators wish to achieve the largest residential lot at the shortest commute time. This finding reveals an important issue related to resident choice and location theory and how resident workers tend to locate in an urban context.
    Keywords: Network structure, travel behavior, transport geography, commuting, circuity
    JEL: R40 R11 R14
    Date: 2007
  13. By: Jacob Vigdor; Jens Ludwig
    Abstract: The mid-1980s witnessed breaks in two important trends related to race and schooling. School segregation, which had been declining, began a period of relative stasis. Black-white test score gaps, which had also been declining, also stagnated. The notion that these two phenomena may be related is also supported by basic cross-sectional evidence. We review existing literature on the relationship between neighborhood- and school-level segregation and the test score gap. Several recent studies point to a statistically significant causal relationship between school segregation and the test score gap, though in many cases the magnitude of the relationship is small in economic terms. Experimental studies, as well as methodologically convincing non-experimental studies, suggest that there is little if any causal role for neighborhood segregation operating through a mechanism other than school segregation.
    JEL: I2 J15 R2
    Date: 2007–03
  14. By: Candau, Fabien
    Abstract: We develop a model for developing countries that investigates the factors behind agglomeration of activities in urban giants. Firstly we show that relatively easier market access to external demand provided by the urban giant tends to attract entrepreneurs to this place. Secondly we find that the attractive power of the urban giant can be linked to a lack of democracy. Indeed we demonstrate that democracy acts as a dispersive force in the sense that by reversing the cost of living effect, it allows to reduce the spatial inequality and then the tendency of agglomeration. Lastly we analyse how the funds embezzled by a bad government vary according to internal and external trade liberalisation. We show that a decrease in the disadvantage of the periphery to trade with the external market can limit the funds embezzled by a Leviathan.
    Keywords: Economic geography; Cities; Trade; Corruption.
    JEL: R12 H25
    Date: 2006–05–31
  15. By: Cardoso, Ana Rute; Verner, Dorte
    Abstract: This paper aims to identify the major drop-out and push-out factors that lead to school abandonment in an urban surrounding-the shantytowns of Fortaleza, Northeast Brazil. The authors use an extensive survey addressing risk factors faced by the population in these neighborhoods, which cover both in-school and out-of-school youth of both genders. They focus on the role of early parenthood, child labor, and poverty in pushing teenagers out of school. The potential endogeneity of some of the determinants is dealt with in the empirical analysis. The authors take advantage of the rich set of variables available and apply an instrumental variables approach. Early parenthood is instrumented with the age declared by the youngsters as the ideal age to start having sexual relationships. Work is instrumented using the declared reservation wage (minimum salary acceptable to work). Results indicate that early parenthood has a strong impact of driving teenagers out of school. Extreme poverty is another factor lowering school attendance, as children who have suffered hunger at some point in their lives are less likely to attend school. In this particular urban context, working does not necessarily have a detrimental effect on school attendance, which could be linked to the fact that dropping out of school leads most often to inactivity and not to work.
    Keywords: Education For All,Youth and Governance,Population Policies,Tertiary Education,Street Children
    Date: 2007–03–01
  16. By: Sherrilyn M. Billger (Illinois State University and IZA)
    Abstract: In this study I examine the relationship between accountability (e.g., state sanctions for poor performance, or the presence of goals required by the district) and public secondary principal pay and school performance. Though such incentives and standards are increasingly common, the existing literature provides little evidence on the effectiveness of these policies. I explore cross-sectional variation in data from the Schools and Staffing Survey, and use quantile regressions where the conditional distributions of pay and school outcomes reflect variation in performance that is not observable in the data. I find that accountability coincides with lower college matriculation rates and lower principal pay, particularly for the best principals. On the other hand, accountability corresponds to higher retention rates at the worst schools. Though they may not be directly rewarded, school principals appear to act as agents for students in danger of dropping out.
    Keywords: pay for performance, school principals, school accountability, education finance
    JEL: J3 J48 I22
    Date: 2007–03
  17. By: Martin Kahanec (IZA Bonn)
    Abstract: Social interaction is an important vehicle of human capital acquisition and its efficiency decreases in social distance. In this paper I establish that these two premises, given the socio-cultural differences between ethnic groups, explain the puzzling evidence that (i) minorities typically earn less than majorities and (ii) this earnings gap is increasing in the relative size of a minority in a given region. In particular, I argue that inter-ethnic social distance disadvantages smaller ethnic groups in human capital acquisition and that these efficiency differentials systematically expose minority and majority individuals to different incentives as concerns their choice of skills. As a result, minority and majority individuals tend to acquire different (combinations of) skills and the textbook substitution effect drives an efficiency unit of minority labor to sell at a relatively lower wage in a region with higher percentage of minority people. The conditions under which the efficiency disadvantage of the minority in social interaction and the substitution effect explain the abovementioned empirical findings are established. In addition, this study offers an answer why some minorities earn more than majorities, why minority individuals tend to spend more time socializing in families than in schools, and why integration may harm minorities.
    Keywords: human capital, earnings inequality, labor market, minority, network externalities, social interaction, ethnic specialization
    JEL: J15 J24 J70 O15
    Date: 2007–03
  18. By: Andrew Coleman (Reserve Bank of New Zealand)
    Abstract: This article solves a high frequency model of price arbitrage incorporating storage and trade when the amount of trade is limited by transport capacity constraints. In equilibrium there is considerable variation in transport costs, because transport costs rise when the demand to ship goods exceeds the capacity limit. This variation is necessary to attract shipping capacity into the industry. In turn, prices in different locations differ by a time varying amount. Thus while the law of one price holds, it holds because of endogenous variation in transport costs.
    JEL: F15 N71 L92
    Date: 2007–03
  19. By: David Levinson; Feng Xie (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: In order to maintain and improve road infrastructure in their respective jurisdictions, the state (the Minnesota DOT), region (the Metropolitan Council), and seven counties in the Twin Cities Metropolitan area develop their respective decision making (investment) processes in which federal or local funding are periodically allocated to road projects, prioritized according to their funding needs based on measured road infrastructure conditions such as pavement quality, level of service, and safety. Including such an investment process in urban transportation planning enables forecasting changes to road infrastructure in the future. Periodic road infrastructure reporting provides standards the jurisdictions maintain, as well as the measures they adopt for the management of road conditions. These measures, developed and maintained by engineers, however, are inconsistent with transportation planning models, causing difficulties in fully using infrastructure reports in planning practice. This paper addresses the issues we encountered with regard to the use of road infrastructure reports in planning practice and identifies the opportunity to improve the inter-operability and integration of infrastructure reporting with urban transportation planning.
    JEL: R41 R42 R48 R53
    Date: 2007
  20. By: Guy Michaels
    Abstract: What are the consequences of resource-based regional specialization, when it persists over a longperiod of time? While much of the literature argues that specialization is beneficial, recent worksuggests it may be costly in the long run, due to economic or political reasons. I examine this questionempirically, using exogenous geological variation in the location of subsurface oil in the SouthernUnited States. I find that oil abundant counties are highly specialized: for many decades their miningsector was almost as large as their entire manufacturing sector. During the 1940s and 1950s, oilabundant counties enjoyed per capita income that was 20-30 percent higher than other nearbycounties, and their workforce was better educated. But whereas in 1940 oil production crowded outagriculture, over the next 50 years it caused the oil abundant counties to develop a smallermanufacturing sector. This led to slower accumulation of human capital in the oil abundant counties,and to a narrowing of per capita income differentials to about 5 percentage points. Despite this caveat,the gains from specialization were large, and specialization had little impact on the fraction of totalincome spent by local government or on income inequality.
    Keywords: Specialization, Growth, Human Capital, Petroleum
    JEL: J24 O18 O33 Q33 R11
    Date: 2006–12
  21. By: Feng Xie; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: Transport infrastructure evolves over time in a complex process as part of a dynamic and open system including travel demand, land use, as well as economic and political initiatives. As transport infrastructure changes, each traveler may adopt a new schedule, frequency, destination, mode, and/or route, and in the long term may change the location of their activities. These new behaviors create demand for a new round of modifications of infrastructure. In the long run, we observe the collective change in the capacity, service, connectivity, and connection patterns (topology) of networks. Exploring the mechanism underlying this dynamic process can answer questions such as how urban networks have developed into various topologies, which networks patterns are more efficient, and whether and how transport engineers, planners, and decision makers can guide the dynamics of land uses and infrastructure in a desired direction. This paper examines how a fixed set of places incrementally gets connected as transport networks are constructed and upgraded over time. A Simulator Of Network Incremental Connection (SONIC) models these processes and examines how the incremental connections are actually implemented, as well as how networks evolve differently, with regard to connectivity and efficiency, under centralized versus decentralized jurisdictional control. The sensitivity of emergent topologies to some model parameters is also tested.
    Keywords: Network growth, Transport economics, Incremental connection
    JEL: R41 R42 R48 O33
    Date: 2007
  22. By: Alan Manning
    Abstract: This paper shows, using data from both the US and the UK, that average plant size is larger indenser markets. However, many popular theories of agglomeration - spillovers, costadvantages and improved match quality - predict that establishments should be smaller incities. The paper proposes a theory based on monopsony in labour markets that can explainthe stylized fact - that firms in all labour markets have some market power but that they haveless market power in cities. It also presents evidence that the labour supply curve toindividual firms is more elastic in larger markets.
    Keywords: Agglomeration, Labour Markets, Monopsony
    JEL: J21 J42 R23
    Date: 2007–01
  23. By: Robert M. Hunt
    Abstract: This paper generalizes and extends the labor market search and matching model of Berliant, Reed, and Wang (2006). In this model, the density of cities is determined endogenously, but the matching process becomes more efficient as density increases. As a result, workers become more selective in their matches, and this raises average productivity (the intensive margin). Despite being more selective, the search process is more rapid so that workers spend more time in productive matches (the extensive margin). The effect of an exogenous increase in land area on productivity depends on the sensitivity of the matching function and congestion costs to changes in density.
    Date: 2007
  24. By: Yann Bramoullé (CIRPÉE, Université Laval); Habiba Djebbari (CIRPÉE, Université Laval and IZA); Bernard Fortin (CIRPÉE, Université Laval)
    Abstract: We provide new results regarding the identification of peer effects. We consider an extended version of the linear-in-means model where each individual has his own specific reference group. Interactions are thus structured through a social network. We assume that correlated unobservables are either absent, or treated as fixed effects at the component level. In both cases, we provide easy-to-check necessary and sufficient conditions for identification. We show that endogenous and exogenous effects are generally identified under network interaction, although identification may fail for some particular structures. Monte Carlo simulations provide an analysis of the effects of some crucial characteristics of a network (i.e., density, intransitivity) on the estimates of social effects. Our approach generalizes a number of previous results due to Manski (1993), Moffitt (2001), and Lee (2006).
    Keywords: peer effects, social networks, identification
    JEL: D85 L14 Z13 C3
    Date: 2007–03
  25. By: Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jung-Duk Lichtenberger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Despite the remarkable economic and financial convergence over the last ten years in the euro area, mortgage interest rates still differ across countries. This note presents some stylised facts on the heterogeneity of mortgage interest rates across euro area countries on the basis of the Eurosystem’s harmonised MFI interest rate statistics. We also attempt to provide some insights into the reasons behind these cross-country differences using the methodology recently proposed by Affinito and Farabullini (2006). We differ from Affinito and Farabullini (2006) in that we focus on one particular banking market: the market for mortgage loans. This allows us to identify more clearly the role of specific structural features characterising that market in explaining mortgage rate dispersion. More specifically, we investigate the extent to which various mortgage loan demand and supply determinants help explaining the observed dispersion. It turns out that some of the heterogeneity can be explained by these factors, in particular those that relate to the supply side. However, a substantial part of the dispersion remains unexplained suggesting that much of the heterogeneity also reflects country-specific institutional differences that are likely to be caused by differences in the regulatory and fiscal framework of the mortgage markets. In order to test this, we extend our analysis to also include institutional factors and indeed find that crosscountry differences in enforcement procedures, tax subsidies and loan-to-value ratios influence the level of mortgage rates. JEL Classification: C23; E4; F36; G21; N24.
    Keywords: Mortgage markets; bank interest rates; euro area countries; financial integration; panel econometrics.
    Date: 2007–02
  26. By: Anthony J. Venables
    Abstract: This paper analyses some of the forces that are changing the spatial distribution of activity inthe world economy. It draws on the 'new economic geography' literature to argue theimportance of increasing returns to scale and cumulative causation processes in shaping theproductivity and comparative advantage of different regions. In the presence of suchincreasing returns there may be persistent spatial disparities in productivity. Economicdevelopment will tend to be 'lumpy', with some regions (countries, or smaller areas such ascities) experiencing rapid growth and others being left behind.
    Keywords: economic geography, urbanisation, world economy, productivity
    JEL: F1 R1
    Date: 2006–12
  27. By: Lei Zhang; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: This paper seeks to understand the economic impact of centralized and decentralized ownership structures and their corresponding pricing and investment strategies on transportation network performance and social welfare for travelers. In a decentralized network economic system, roads are owned by many agencies or companies that are responsible for pricing and investment strategies. The motivation of this study is two-fold. First, the question of which ownership structure, or industrial organization, is optimal for transportation networks has yet to be resolved. Despite several books devoted to this research issue, quantitative methods that translate ownership-related policy variables into short- and long-run network performance are lacking. Second, the U.S. and many other countries have recently seen a slowly but steadily increasing popularity of road pricing as an alternative to traditional fuel taxes. Not only is the private sector encouraged to finance new roads, this transition in revenue mechanism also makes it possible for lower-level government agencies and smaller jurisdictions to participate in network pricing and investment practice. The issue of optimal ownership is no longer a purely theoretical debate, but bears practical importance. This research adopts an agent-based simulator of network dynamics to explore the implications of centralized and decentralized ownership on mobility and social welfare, as well as potential financial issues and regulatory needs. Components of the simulator: the travel demand model, cost functions, and key variables of pricing and investment strategies, are empirically estimated and validated. Results suggest that road network is a market with imperfect competition. While there is a significant performance lag between the optimal strategy and the current network financing practice in the U.S. (characterized by centralized control, fuel taxes, and budget-balancing investment), a completely decentralized network suffers from issues such as higher-than-optimal tolls and over-investment. For the decentralized ownership structure, appropriate regulation on pricing and investment practices is necessary. Further analysis based on simulation comparisons suggests that with appropriate price regulation, a decentralized road economy consisting of profit-seeking road owners could outperform the existing centralized control, achieve net social benefits close to the theoretical optimum, and distribute a high percentage of welfare gains to travelers. Decentralized control is especially valuable in rapidly changing environments because it promptly responds to travel demand. These results seem to favor the idea of privatizing or decentralizing road ownership on congested networks. Further tests on real-world transportation networks are necessary and should make an interesting future study.
    Keywords: Network economics, Modeling network dynamics, Road pricing, Transportation financing, Privatization.
    JEL: R41 R42 R48 D21 D24 D81 D83 C72
    Date: 2006
  28. By: David Levinson; Ewa Zofka (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: This paper summarizes research on standards for archiving travel survey data. It then describes some of the efforts at organizing data and developing metadata. The development of metadata standards used for documenting datasets using DDI (Data Documentation Initiative) for DTD (Document Type Definitions) is described. A case, applying these approaches to a US Metropolitan Travel Survey Archive is presented. The Metropolitan Travel Survey Archive, housed at the University of Minnesota, now contains over 60 surveys from almost 30 metropolitan areas. The paper concludes with some recommendations for archiving data.
    Keywords: Travel Surveys, Activity Surveys, Archiving
    JEL: C80 R40 D13
    Date: 2006
  29. By: Lei Zhang; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: A major strategy of federal ITS initiatives and state departments of transportation is to provide traveler information to motorists through various means, including variable message signs, the internet, telephone services like 511, in-vehicle guidance systems, and TV and radio reports. This is relatively uncontroversial, but its effectiveness is unknown. Drivers receive value from traveler information in several ways, including the ability to save time, but perhaps more importantly, other personal, social, safety, or psychological impacts from certainty. This information can be economically valued. The benefits of reduction in driver uncertainty when information is provided at the beginning of the trip by various means is the main variable we aim to measure in this research, in which we assess user preferences for routes as a function of the presence and accuracy of information, while controlling for other trip and route attributes, such as trip purpose, travel time, distance, number of stops, delay, esthetics, level of commercial development, and individual characteristics. Data is collected in a field experiment in which more than 100 drivers, given real-time travel time information with varying degrees of accuracy, drove four of five alternative routes between a pre-selected OD pair in the Twin Cities metro area. Ordinary regression, multinomial, and rank-ordered logit models produce estimates of the value of information with some variation. In general, results show that travelers are willing to pay up to $1 per trip for pre-trip travel time information. The value of information is higher for commute and event trips and when congestion on the usual route is heavier. The accuracy of the traveler information is also a crucial factor. In fact, there do not seem be incentives for travelers to use traveler information at all unless they perceive it to be accurate. Finally, most travelers (70%) prefer that such information should be provided for free by the public sector, while some (19%) believe that it is better for the private sector to provide such service at a charge. Over 35% of subjects are willing to pay for OD-customized pre-trip travel time information.
    Keywords: Value of Information, Advanced Traveler Information System (ATIS), Real-Time Traffic Operations, Travel Behavior, Spatial behavior, Wayfinding Behavior, Route Choice.
    JEL: R41 R48 D10 D83 D85 C93 C91
    Date: 2006
  30. By: Daniel Becker (University of Rostock); Michael Rauscher (University of Rostock)
    Abstract: Is tax competition good for economic growth? The paper addresses this question by means of a simple model of endogenous growth. There are many small jurisdictions in a large federation and individual governments benevolently maximise the welfare of immobile residents. Investment is costly: Quadratic installation and de-installation costs limit the mobility of capital. The paper looks at optimal taxation and long-run growth. In particular, the effects of variations in the cost parameter on economic growth and taxation are considered. It is shown that balanced endogenous growth paths do not always exist and effects of changes in intallation costs are ambiguous.
    Keywords: Fiscal Federalism, Tax Competition, Endogenous Growth
    JEL: H70 F21 O00
    Date: 2007
  31. By: Ahmed El-Geneidy; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: Accessibility is the potential of opportunities for interaction in an urban context. The widely used accessibility measure consists of the number of opportunities that can be reached within a region or a period of time multiplied by a cost or impedance function for reaching these opportunities. This measure assumes that all people living within a region will follow a certain impedance function and will equally evaluate the opportunities. This paper proposes a new accessibility measure, “place rank.” Knowing people’s origins and destinations is a key to develop this new measure. Both impedance and value of opportunities are embedded in the dataset that includes origins and estination of each person utilizing the studied region. Level of accessibility in a zone is determined based on the number of people coming to this zone to reach an opportunity. Each person contributes to the accessibility level in the zone where he is commuting to with a different power. The power of the contribution of this person depends on the attractiveness of his zone of his origin. In this paper we discuss the place rank measure and compare it to the traditional gravity based measure. Since this measure is based on people’s actual choices of origins and destinations it is more comprehensive and accurate than previous accessibility measures in terms of impedances and opportunity calculations.
    Keywords: Accessibility, Mobility, Gravity Based, Cumulative Opportunity, Land Use, Place Rank
    JEL: R40 R11 R14
    Date: 2007
  32. By: Pieter A. Gautier (Free University of Amsterdam, Tinbergen Institute and IZA); Michael Svarer (University of Aarhus); Coen N. Teulings (CPB, University of Amsterdam and IZA)
    Abstract: Is moving to the countryside a credible commitment device for couples? We investigate whether lowering the arrival rate of potential alternative partners by moving to a less populated area lowers the dissolution risk for a sample of Danish couples. We find that of the couples who married in the city, the ones who stay in the city have significant higher divorce rates. Similarly, for the couples who married outside the city, the ones who move to the city are more likely to divorce. This correlation can be explained by both a causal and a sorting effect. We disentangle them by using the timing-of-events approach. In addition we use information on father’s location as an instrument. We find that the sorting effect dominates. Moving to the countryside is therefore not a cheap way to prolong relationships.
    Keywords: dissolution, search, mobility, city
    JEL: J12 J64
    Date: 2007–02
  33. By: Xi Zou; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: Timely traffic prediction is important in advanced traffic management systems to make possible rapid and effective response by traffic control facilities. From the observations of traffic flow, the time series present repetitive or regular behavior over time that distinguishes time series analysis of traffic flow from classical statistics, which assumes independence over time. By taking advantage of tools in frequency domain analysis, this paper proposes a new criterion function that can detect the onset of congestion. It is found that the changing rate of the cross-correlation between density dynamics and flow rate determines traffic transferring from free flow phase to the congestion phase. A definition of traffic stability is proposed based on the criterion function. The new method suggests that an unreturnable transition will occur only if the changing rate of the cross-correlation exceeds a threshold. Based on real traffic data, detection of congestion is conducted in which the new scheme performs well compared to previous studies.
    Keywords: Congestion, Queueing, Traffic Flow, Congestion Pricing
    JEL: R41
    Date: 2006
  34. By: Lei Zhang; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: A number of factors influence the efficiency, productivity, and welfare of a transportation network. Travel demand, user costs, and facility supply costs equilibrate on various time scales under a set of pricing (taxes and tolls), investment and ownership policies. Two types of equilibria exist in a transportation network, short-run traffic equilibrium and long-run supply-demand equilibrium. The phenomenon of traffic equilibrium is explored with a fixed transportation network where the capacity of links is given. Even though investment- and ownership-related policies are not of major concern for studies on traffic equilibrium, it is still a complex problem due to network congestion effects, variations of pricing rules, and multidimensionality of user choices. In order to understand the long-run supply-demand equilibrium in a transportation network, one has to consider all above-mentioned factors in a coherent analytical framework. We refer to this research problem as the transportation network growth problem, because the network evolves and link capacity is not fixed in the long run. Most previous studies have considered network pricing, investment, and ownership structures separately, which are reviewed. The paper considers choices of prices, capacity, and ownership simultaneously on small parallel, serial, and parallel-serial networks, and develops an analytical network model. We discuss properties of long-run network equilibria with different network layouts and ownership regimes, and the implications on network efficiency.
    Keywords: Network economics, Modeling network dynamics, Road pricing, Transportation financing, Privatization.
    JEL: R41 R42 R48 D21 D24 D81 D83 C72
    Date: 2006
  35. By: Lei Zhang; David Levinson; Shanjiang Zhu (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: Using consistent agent-based techniques, this research models the decision-making processes of users and infrastructure owner/operators to explore the welfare consequence of price competition, capacity choice, and product differentiation on congested transportation networks. Component models include: (1) An agent-based travel demand model wherein each traveler has learning capabilities and unique characteristics (e.g. value of time); (2) Econometric facility provision cost models; and (3) Representations of road authorities making pricing and capacity decisions. Different from small-network equilibrium models in prior literature, this agent-based model is applicable to pricing and investment analyses on large complex networks. The subsequent economic analysis focuses on the source, evolution, measurement, and impact of product differentiation with heterogeneous users on a mixed ownership network (with tolled and untolled roads). Two types of product differentiation in the presence of toll roads, path differentiation and space differentiation, are defined and measured for a base case and several variants with different types of price and capacity competition and with various degrees of user heterogeneity. The findings favor a fixed-rate road pricing policy compared to complete pricing freedom on toll roads. It is also shown that the relationship between net social benefit and user heterogeneity is not monotonic on a complex network with toll roads.
    Keywords: Network dynamics, road pricing, autonomous links, privatization, price competition, product differentiation, agent-based transportation model
    JEL: R40 R42 R48 D10 D21 D23 D24 D43 D83 D85 H21 H23 H44 L92 O33 C72
    Date: 2007
  36. By: Lei Zhang; Feng xie; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota)
    Abstract: This paper explores drivers' subjective value of time under moving and stopped freeway travel conditions using a stated preference survey. Unlike previous studies that assume a constant value of time, this research relates perceived satisfaction of a freeway trip to its quality indicators. Sixty-nine subjects in the Twin Cities are asked in the survey to rank sixteen driving scenarios in four condition sets with different durations of ramp wait and freeway travel. Several utility functions are specified where the weight of ramp delay is a function of the length of the delay itself and subject specific variables, and the resulting choice models estimated using rank-ordered logit and binary logit techniques. Results suggest that drivers perceive ramp wait as more onerous than freeway travel. Drivers also weight each minute of ramp wait more heavily as the length of the delay gets longer. Although the subjects show some tolerance to the first several minutes of ramp delay (less than 5 minutes), they perceive long delays as much as twelve times more onerous than time in motion. The derived weighting function for ramp wait can improve the design of freeway traffic control strategies that trade-off freeway delay with ramp wait. The findings also enable a more utility-based approach for freeway operations than the current method which has the engineering efficiency objective of minimizing total system delay or maximizing throughput. Minimizing total perceived travel time is probably more appropriate than minimizing total absolute travel time which does not take into account driver acceptance. The weighting function can also be easily transformed into a value of time function for project evaluation purposes.
    Keywords: Value of time, value of travel time, Time perception, Driver acceptance, Freeway congestion, Ramp meter
    JEL: R40 R42 R48 D10 C91
    Date: 2007

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