nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2007‒10‒27
twenty-two papers chosen by
Steve Ross
University of Connecticut

  1. Was Postwar Suburbanization "White Flight"? Evidence from the Black Migration By Leah Platt Boustan
  2. Public School Choice and Integration: Evidence from Durham, North Carolina By Robert Bifulco; Helen F. Ladd; Stephen Ross
  3. Housing and the Monetary Transmission Mechanism By Frederic S. Mishkin
  4. School Finance Reform: Assessing General Equilibrium Effects By Dennis N. Epple; Maria Marta Ferreyra
  5. Strategic competition in Swedish local spending on childcare, schooling and care for the elderly By Edmark, Karin
  6. Do Political Parties Matter? Evidence from U.S. Cities By Fernando Ferreira; Joseph Gyourko
  7. Choice of mortgage contracts: evidence from the Survey of Consumer Finances By Brahima Coulibaly; Geng Li
  8. Localization Economies and Establishment Scale: A Dartboard Approach By Octávio Figueiredo; Paulo Guimarães; Douglas Woodward
  9. Quantifying the Benefits of Entry into Local Phone Service, By Nicholas Economides; V. Brian Viard; Katja Seim
  10. Congestion and Market Structure in the Airline Industry By Itai Ater; ;
  11. Diversity, choice and the quasi-market: An empirical analysis of secondary education policy in England By Steve Bradley; Jim Taylor
  12. The Changing Role of Family Income and Ability in Determining Educational Achievement By Philippe Belley; Lance Lochner
  13. A Technical Note on Comparative Dynamics in a Fiscal Competition Model By Daniel Becker
  14. Office Space Supply Restrictions in Britain: The Political Economy of Market Revenge By Cheshire, Paul; Hilber, Christian A. L.
  15. Income Heterogeneity and the Flypaper Effect By Witterblad, Mikael
  16. A Retail Benchmarking Approach to Eficient Two-Way Access Pricing By Doh-Shin Jeon; Sjaak Hurkens
  17. Am I missing something? The effects of absence from class on student performance By Arulampalam, Wiji; Naylor, Robin A.; Jeremy Smith
  18. Shifting Death to their Alternatives: The Case of Toll Motorways. By Daniel Albalate
  19. Explaining the size distribution of cities: X-treme economies By Berliant, Marcus; Watanabe, Hiroki
  20. Space and time in macroeconomic panel data: young workers and state-level unemployment revisited By Christopher L. Foote
  21. Cross-border M&As and the changing economic geography of Europe By Andrés Rodríguez-Pose; Hans-Martin Zademach
  22. Employment and Self-Employment in the Wake of Hurricane Katrina By Julie Zissimopoulos; Lynn A. Karoly

  1. By: Leah Platt Boustan
    Abstract: Residential segregation across jurisdiction lines generates disparities in public services and education by race. The distinctive American pattern -- in which blacks live in the center city and whites in the suburban ring -- was enhanced by black migration from the rural South from 1940-1970. I show that urban whites responded to this black influx by relocating to the suburbs and rule out the indirect effect on urban housing prices as a cause. Black migrants may have been attracted to areas already undergoing suburbanization. I create an instrument for changes in urban diversity that predicts black migrant flows from southern states and assigns these flows to northern cities according to established settlement patterns. The best causal estimates imply that "white flight" explains around 20 percent of suburban growth in the postwar period.
    JEL: J61 N12 R23
    Date: 2007–10
  2. By: Robert Bifulco (University of Connecticut); Helen F. Ladd (Duke University); Stephen Ross (University of Connecticut)
    Abstract: Using evidence from Durham, North Carolina, we examine the impact of school choice programs on racial and class-based segregation across schools. Theoretical considerations suggest that how choice programs affect segregation will depend not only on the family preferences emphasized in the sociology literature but also on the linkages between student composition, school quality and student achievement emphasized in the economics literature, and on the availability of schools of different types. Reasonable assumptions about how these factors differ for students of different races and socio-economic status suggest that the segregating choices of students from advantaged backgrounds are likely to outweigh any integrating choices by disadvantaged students. The results of our empirical analysis are consistent with these theoretical considerations. Using information on the actual schools students attend and on the schools in their assigned attendance zones, we find that schools in Durham are more segregated by race and class as a result of school choice programs than they would be if all students attended their geographically assigned schools. In addition, we find that the effects of choice on segregation by class are larger than the effects on segregation by race.
    JEL: H31 I20
    Date: 2007–10
  3. By: Frederic S. Mishkin
    Abstract: The housing market is of central concern to monetary policy makers. To achieve the dual goals of price stability and maximum sustainable employment, monetary policy makers must understand the role that housing plays in the monetary transmission mechanism if they are to set policy instruments appropriately. In this paper, I examine what we know about the role of housing in the monetary transmission mechanism and then explore the implications of this knowledge for the conduct of monetary policy. I begin with a theoretical and empirical review of the main housing-related channels of the transmission mechanism. These channels include the ways interest rates directly influence the user cost of housing capital, expectations of future house-price movements, and housing supply; and indirectly influence the real economy through standard wealth effects from house prices, balance sheet, credit-channel effects on consumer spending, and balance sheet, credit-channel effects on housing demand. I then consider the interaction of financial stability with the monetary transmission mechanism, and discuss the ways in which the housing sector might be a source of financial instability, and whether such instability could affect the ability of a central bank to stabilize the overall macroeconomy. I conclude with a discussion of two key policy issues. First, how can monetary policy makers deal with the uncertainty with regard to housing-related monetary transmission mechanisms? And second, how can monetary policy best respond to fluctuations in asset prices, especially house prices, and to possible asset-price bubbles?
    JEL: E2 E44 E58 R21
    Date: 2007–10
  4. By: Dennis N. Epple; Maria Marta Ferreyra
    Abstract: In 1994 the state of Michigan implemented one of the most comprehensive school finance reforms undertaken to date in any of the states. Understanding the effects of the reform is thus of value in informing other potential reform initiatives. In addition, the reform and associated changes in the economic environment provide an opportunity to assess whether a simple general equilibrium model can be of value in framing the study of such reform initiatives. In this paper, we present and use such a model to derive predictions about the effects of the reform on housing prices and neighborhood demographic compositions. Broadly, our analysis implies that the effects of the reform and changes in the economic environment are likely to have been reflected primarily in housing prices and only modestly on neighborhood demographics. We find that evidence for the Detroit metropolitan area from the decade encompassing the reform is largely consistent with the predictions of the model.
    JEL: H42 H71 H73 I22
    Date: 2007–10
  5. By: Edmark, Karin (IFAU - Institute for Labour Market Policy Evaluation)
    Abstract: This study tests for strategic competition in public spending on childcare and primary education, and care for the elderly, using panel data on Swedish municipalities over 1996-2005. The high degree of decentralization in the organization of the public sector implies that Swedish data is highly suitable for this type of study. The study is not limited to interactions in the same type of expenditure, but also allows for effects across expenditures. The results give no robust support for the hypothesis that municipalities react on the spending policy of neighbouring municipalities in the decision on own spending on care of the elderly, childcare and education.
    Keywords: Strategic interactions; spatial econometrics; decentralization; local public spending
    JEL: C31 H72 H77
    Date: 2007–10–08
  6. By: Fernando Ferreira; Joseph Gyourko
    Abstract: We examine whether partisan political differences have important effects on policy outcomes at the local level using a new panel data set of mayoral elections in the United States. Applying a regression discontinuity design to deal with the endogeneity of the mayor's party, we find that party labels do not affect the size of government, the allocation of spending or crime rates, even though there is a large political advantage to incumbency in terms of the probability of winning the next election. The absence of a strong partisan impact on policy in American cities, which is in stark contrast to results at the state and federal levels of government, appears due to certain features of the urban environment associated with Tiebout sorting. In particular, there is a relatively high degree of household homogeneity at the local level that appears to provide the proper incentives for local politicians to be able to credibly commit to moderation and discourages strategic extremism.
    JEL: H7 R38
    Date: 2007–10
  7. By: Brahima Coulibaly; Geng Li
    Abstract: This study revisits the empirical question of the determinants of the choice between fixed and adjustable-rate mortgages using more comprehensive data from the Survey of Consumer Finances (SCF) that overcome some of the data limitations in previous studies. The results from a Logit model of mortgage choice indicate that pricing variables and affordability are important considerations. We also find that factors such as mobility expectations, income volatility, and attitudes toward financial risk largely influence mortgage choice, with more risk-averse borrowers preferring fixed-rate mortgages. For households that are less risk averse, the mortgage type choice decision is less sensitive to pricing variables and income volatility, and affordability factors are not significant. These findings provide empirical support that underscore the importance of attitudes toward risks in mortgage choice.
    Date: 2007
  8. By: Octávio Figueiredo (Universidade do Porto and CEMPRE, Portugal); Paulo Guimarães (University of South Carolina); Douglas Woodward (University of South Carolina)
    Abstract: This paper reexamines the relationship between geographic concentration of an industry (localization) and establishment scale. We use an approach that builds on Ellison & Glaeser’s (1997) dartboard location model to measure localization. Contrary to Holmes & Stevens’s (2002) pioneering analysis based on employment location quotients, but in line with the predictions that follow from Alfred Marshall’s concept of localization economies, we find evidence that plants located in areas where an industry exhibits concentration in excess are smaller than plants in the same industry outside such areas.
    Keywords: dartboard location model, localization, establishment scale
    JEL: R12 R39 L11
    Date: 2007–09
  9. By: Nicholas Economides (Stern School of Business, NYU); V. Brian Viard (Graduate School of Business, Stanford University); Katja Seim (Stanford University)
    Abstract: In this paper, we evaluate the consumer welfare effects of entry into residential local phone service in New York State. Residential local phone service competition was an important goal of the 1996 Telecommunications Act. We provide a detailed evaluation of its effects on consumer welfare using household-level data on service choices from the third quarter of 1999 to the first quarter of 2003. Our results indicate that as a result of entry households that subscribe to one of the entrants' services gain on average an equivalent of $2.33 per month in overall welfare from local telecommunications services, or 6.2% of the households' average bill. Averaged across all households including those that remain with the incumbent, households gain the equivalent of $0.83 per month, although benefits vary dramatically across households. Since residential local phone service is sold under a menu of nonlinear tariffs, we develop a method for estimating a mixed discrete/continuous demand model. The econometric model incorporates the simultaneity of the discrete plan and continuous consumption choices by consumers. We allow for flat-rate plans, bundling of services, and unobservable firm quality. Taking advantage of the detailed nature of the data, we decompose the households' overall gains from entry and find that benefits due to firm differentiation and new plan introductions exceed those from price effects.
    Keywords: Entry, Nonlinear Pricing, Telecommunications, Discrete/Continuous Demand
    JEL: D43 K23 L11 L13 L96
    Date: 2007–10
  10. By: Itai Ater (Stanford University, Economics Department); ;
    Abstract: Empirical research on the relationship between market congestion and the market competitive level largely falsifies the positive relationship predicted by theoretical models. In this paper, I exploit the airline industry network structure and focus on the level of congestion during periods in which passengers cross-connect to their final destinations. About 70% of hub airport flights depart or land during these periods. The empirical analysis establishes a strong positive relationship. Furthermore, based on a simple theoretical model, I am able to quantify the potential time savings from eliminating congestion externalities and find that, on average, a flight can save 2 minutes of flight time at its departing airport and another 1.5 minutes at its destination airport. I also find that airlines choose to pad their schedule particularly on competitive routes, presumably to attract uninformed passengers. JEL classification: L93; R41;
    Keywords: Congestion; Air Transportation;
    Date: 2007–09
  11. By: Steve Bradley; Jim Taylor
    Abstract: This paper investigates the extent to which exam performance at the end of compulsory education has been affected by three major education reforms: the introduction of a quasi-market following the Education Reform Act (1988); the specialist schools initiative introduced in 1994; and the Excellence in Cities programme introduced in 1999. We use data for all state-funded secondary schools in England over the period 1992-2006. The empirical analysis, which is based on the application of panel data methods, indicates that the government and its agencies have substantially overestimated the benefits flowing from these three major reforms. Only about one-third of the improvement in GCSE exam scores during 1992-2006 is directly attributable to the combined effect of the education reforms. The distributional consequences of the policy, however, are estimated to have been favourable, with the greatest gains being achieved by schools with the highest proportion of pupils from poor families. But there is evidence that resources have not been allocated efficiently.
    Date: 2007
  12. By: Philippe Belley; Lance Lochner
    Abstract: This paper uses data from the 1979 and 1997 National Longitudinal Survey of Youth cohorts (NLSY79 and NLSY97) to estimate changes in the effects of ability and family income on educational attainment for youth in their late teens during the early 1980s and early 2000s. Cognitive ability plays an important role in determining educational outcomes for both NLSY cohorts, while family income plays little role in determining high school completion in either cohort. Most interestingly, we document a dramatic increase in the effects of family income on college attendance (particularly among the least able) from the NLSY79 to the NLSY97. Family income has also become a much more important determinant of college 'quality' and hours/weeks worked during the academic year (the latter among the most able) in the NLSY97. Family income has little effect on college delay in either sample. To interpret our empirical findings on college attendance, we develop an educational choice model that incorporates both borrowing constraints and a 'consumption' value of schooling - two of the most commonly invoked explanations for a positive family income - schooling relationship. Without borrowing constraints, the model cannot explain the rising effects of family income on college attendance in response to the sharply rising costs and returns to college experienced from the early 1980s to early 2000s: the incentives created by a 'consumption' value of schooling imply that income should have become less important over time (or even negatively related to attendance). Instead, the data are more broadly consistent with the hypothesis that more youth are borrowing constrained today than were in the early 1980s.
    JEL: H52 I2 J24
    Date: 2007–10
  13. By: Daniel Becker (University of Rostock)
    Abstract: This note discusses the comparative dynamic analysis in "Fiscal competition in space and time" by David Wildasin (Journal of Public Economics, Vol. 87, 2003) from a technical point of view.
    Keywords: dynamic tax competition, imperfect capital mobility, comparative dynamics, Peano Theorem
    JEL: H21 H77 O40 C61
    Date: 2007
  14. By: Cheshire, Paul; Hilber, Christian A. L.
    Abstract: Office space in Britain is the most expensive in the world and regulatory constraints are the obvious explanation. We estimate the ‘regulatory tax’ for 14 British office locations from 1961 to 2005. These are orders of magnitude greater than estimates for Manhattan condominiums or office space in continental Europe. Exploiting the panel data, we provide strong support for our hypothesis that the regulatory tax varies according to whether an area is controlled by business interests or residents. Our results imply that the cost of the 1990 change converting commercial property taxes from a local to a national basis – transparently removing any fiscal incentive to permit local development – exceeded any plausible rise in local property taxes.
    Keywords: Land use regulation; regulatory costs; business taxation; office markets.
    JEL: H3 Q15 J6 R52
    Date: 2007–04–18
  15. By: Witterblad, Mikael (Department of Economics, Umeå University)
    Abstract: The purpose of this paper is to analyze the determinants of the local public expenditures and, in particular, try to explain the so called ’flypaper effect’. The analysis uses a political economy model to relate the existence and size of the flypaper effect to observable municipal characteristics such as the average tax base, income dispersion andwhether or not a change in the average tax base affects the tax share of the majority voter. The empirical part of the study is based on Swedish data on municipal expenditures and revenues for the period 1996-2004. The results show that the size of the flypaper effect varies among municipalities depending on the relative composition of grant and tax base.
    Keywords: Income Dispersion; Local Public Expenditures; Intergovernmental Relations
    JEL: D31 H72 H77
    Date: 2007–10–19
  16. By: Doh-Shin Jeon; Sjaak Hurkens
    Abstract: We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network covera
    Keywords: Networks, Access Pricing, Interconnection, Competition
    JEL: D4 K21 L41 L51 L96
    Date: 2007–10–18
  17. By: Arulampalam, Wiji (Department of Economics, University of Warwick); Naylor, Robin A. (Department of Economics, University of Warwick); Jeremy Smith (Department of Economics, University of Warwick)
    Abstract: We exploit a rich administrative panel data-set for cohorts of Economics students at a UK university in order to identify causal effects of class absence on student performance. We exploit the panel properties of the data to control for unobserved heterogeneity across students and hence for endogeneity between class absence and academic performance of students stemming from the likely influence of effort and ability on both absence and performance. Our estimations also exploit features of the data such as the random assignment of students to classes and information on the timetable of classes, which provides potential instruments in our identification strategy. Among other results we find, from a quantile regression specification, that there is a causal effect of absence on performance for students : missing class leads to poorer performance. There is evidence that this is particularly true for better-performing students, consistent with our hypothesis that effects of absence on performance are likely to vary with factors such as student ability.
    Keywords: Randomised experiments ; quantile regression ; selection correction ; panel data ; education ; student performance ; class absence
    JEL: C41 J24 I2
    Date: 2007
  18. By: Daniel Albalate (Grup de Recerca en Polítiques Públiques i Regulació Econòmica(PPRE), Institut de Recerca d'Economia Aplicada (IREA), Departament de Política Econòmica, Universitat de Barcelona.)
    Abstract: A renewed interest on the use of tolls for funding motorways and regulating their demands has been recovered in the last years. However, less attention has been put to the road safety effects derived from this policy. Although toll motorways show quality levels equal or above free motorways, charging users for the use of better infrastructure shifts some traffic to their low quality adjacent alternatives. In the present study we test whether charging for the use of the better road might negatively affect road safety in the worst adjacent road. The results confirm our hypothesis opening a new concern.
    Keywords: Road Safety, Tolls, Motorways and Transportation
    JEL: H23 I18 R48
    Date: 2007–10
  19. By: Berliant, Marcus; Watanabe, Hiroki
    Abstract: The methodology used by theories to explain the size distribution of cities is contrived in that it takes an empirical fact and works backward to first obtain a reduced form of a model, then pushes this reduced form back to assumptions on primitives. The induced assumptions on consumer behavior, particularly about their ability to insure against the city-level productivity shocks in the model, are untenable. With either self insurance or insurance markets, and either an arbitrarily small cost of moving or the assumption that consumers do not perfectly observe the shocks to firms' technologies, the agents will never move. Equilibrium implies a uniform distribution of agents. Even without these frictions, our analysis yields another equilibrium with insurance that gives exactly the same utility level to consumers as the equilibrium studied in the literature, but where consumers never move. Thus, insurance is a substitute for movement. Even aggregate shocks are insufficent to generate consumer movement, since consumers can borrow and save. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move.
    Keywords: Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory
    JEL: R12
    Date: 2007–10–24
  20. By: Christopher L. Foote
    Abstract: A provocative paper by Shimer (2001) finds that state-level youth shares and unemployment rates are negatively correlated, in contrast to conventional assumptions about demographic effects on labor markets. This paper updates Shimer's regressions and shows that this surprising correlation essentially disappears when the end of the sample period is extended from 1996 to 2005. This shift does not occur because of a change in the underlying economy during the past decade. Rather, the presence of a cross-sectional (that is, spatial) correlation in the state-level data sharply reduces the precision of the earlier estimates, so that the true standard errors are several times larger than those originally reported. Using a longer sample period and some controls for spatial correlation in the regression, point estimates for the youth-share effect on unemployment are positive and close to what a conventional model would imply. Unfortunately, the standard errors remain very large. The difficulty of obtaining precise estimates with these data illustrates a potential pitfall in the use of regional panel data for macroeconomic analysis.
    Keywords: Unemployment
    Date: 2007
  21. By: Andrés Rodríguez-Pose (London School of Economics); Hans-Martin Zademach (University of Munich)
    Abstract: This paper investigates the patterns of corporate mergers and acquisitions (M&As) involving firms located in the EU25 as well as in the four EFTA countries between 1998 and 2003. It first uncovers the \'cross-border balance\' of M&As across European states, before identifying, through quantitative multiple regression analysis and insights from qualitative, interview-based research, the extent to which the spatial perspective sheds light onto the factors that may explain the detected levels and patterns of corporate takeovers across Europe. The results indicate that the traditional motives of access to new and core markets, the effects of geographical proximity, and the internalisation of \'localised capabilities\' (proxied by a skilled and innovative labour pool) represent the key drivers of European M&As. Institutional factors, such as European integration, assessments of country risk, or language barriers, as well as structural factors (e.g. unemployment or education) appear to be - at least at the intra-European scale - less influential.
    Keywords: mergers & acquisitions; theory of the firm; spatial proximity; agglomeration economies; localised capabilities; economic integration; Europe
    Date: 2007–09–24
  22. By: Julie Zissimopoulos; Lynn A. Karoly
    Abstract: Year 2005 brought four severe hurricanes to the U.S. Gulf states, including Hurricane Katrina, an exceptional storm in terms of its magnitude of destruction. The authors examine the short- and long-term effects of Hurricane Katrina on the labor market outcomes of prime age individuals in the states most affected by the hurricane and for evacuees using data from the monthly Current Population Survey. They find that in the states most affected by Hurricane Katrina-Alabama, Florida, Louisiana and Mississippi-employment and unemployment by the end of 2006 were at similar rates as the end of 2003 with the exception of Mississippi, which still had lower employment and higher unemployment at the end of 2006 compared with pre-Katrina levels. By one year after the hurricane, evacuees that returned to their pre-Katrina state of residence have labor force participation rates and unemployment rates at the same level or near that of non-evacuees. Evacuees that relocated (non-returnees) have lower employment rates and higher unemployment rates, both immediately following the hurricane and one year later. Self-employment rates are higher for returning evacuees in all states compared with non-evacuees in those states in the months immediately following the hurricane but are no different one year later. There is some evidence of higher self-employment rates among non-returnees that may be due to poor job prospects in the wage and salary sector or due to new opportunities for starting businesses in the wake of Hurricane Katrina.
    Keywords: Hurricane Katrina, self-employment, labor force
    JEL: J21 J64
    Date: 2007–09

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