nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2008‒02‒09
thirty-one papers chosen by
Steve Ross
University of Connecticut

  1. The Dynamics of City Formation By J. Vernon Henderson; Anthony Venables
  2. Black-White Appreciation of Owner Occupied Homes in Upper Income Suburban Integrated Communities: The Cases of Maplewood and Montclair, New Jersey By Douglas Coate; Richard Schwester
  3. Shaping urban traffic patterns through congestion charging: What factors drive success or failure?. By Daniel Albalate; Germa Bel
  4. Class size and sorting in market equilibrium: Theory and evidence By Miguel Urquiola; Eric A. Verhoogen
  5. Efficient Portfolios when Housing Needs Change over the Life-Cycle By Loriana Pelizzon; Guglielmo Weber
  6. Household Wealth Accumulation and Portfolio Choices in Korea By Sang-Wook Stanley Cho
  7. Assessing Urban Crime And Its Control: An Overview By Philip J. Cook
  8. Urban Amenities or Agglomeration Economies? Locational Behaviour and Entrepreneurial Success of Dutch Fashion Designers By Rik Wenting; Oedzge Atzema; Koen Frenken
  9. Accounting for Lifecycle Wealth Accumulation: The Role of Housing Institution By Sang-Wook Stanley Cho
  10. How effective are poor schools? Poverty and educational outcomes in South Africa By Servaas Van der Berg
  11. Do Local Economic Development Programs Work? Evidence from the Federal Empowerment Zone Program By Matias Busso; Patrick Kline
  12. The costs and benefits of providing open space in cities By Jan Rouwendal; Willemijn van der Straaten
  13. Social Interactions and Schooling Decisions By Rafael Lalive; Alejandra Cattaneo
  14. Is the GED an Effective Route to Postsecondary Education for School Dropouts? By Tyler, John; Lofstrom, Magnus
  15. House Prices and Replacement Cost: A Micro-Level Analysis By Rainer Schulz; Axel Werwatz
  16. Beyond the Knowledge-Based Theory of the Geographic Cluster By Bjørn Asheim; Ron A. Boschma; Philip Cooke
  17. An Economic Model of Friendship: Homophily, Minorities and Segregation By Sergio Currarini; Paolo Pin; Matthew O. Jackson
  18. The Effects of an Upper Secondary Education Reform on the Attainment of Immigrant Youth By Christian N. Brinch, Bernt Bratsberg and Oddbjørn Raaum
  19. Red Cities, Blue Cities: Creativity, Growth and Politics By Thomas Tiemann; Cassandra DiRienzo; Jayoti Das
  20. The Diffusion of Wal-Mart and Economies of Density By Thomas J. Holmes
  21. Mapping the ICT in EU Regions: Location, Employment, Factors of Attractiveness and Economic Impact By Barrios, Salvador; Mas, Matilde; Navajas, Elena; Quesada, Javier
  22. Constructing regional advantage: Platform policies based on related variety and differentiated knowledge bases By Alexander Cole
  23. The Emergence of Information Sharing in Credit Markets By Martin Brown; Christian Zehnder
  24. The Household Wealth Distribution in Spain: The Role of Housing and Financial Wealth By Francisco Azpitarte
  25. Motorways, tolls and road safety.Evidence from European Panel Data. By Daniel Albalate; Germa Bel
  26. Equalization Payments in a Bargaining Model of Tax Competition By John Leach
  27. Innovation Processes and Industrial Districts By Paul L. Robertson; David Jacobson; Richard N. Langlois
  28. Self-organized Agglomerations and Transport Costs By Pierre Picard; Takatoshi Tabuchi
  29. Forced to Be Rich? Returns to Compulsory Schooling in Britain By Devereux, Paul; Hart, Robert A.
  30. Peers and Culture. By Maria Saez-Marti; Anna Sjögren
  31. I'd rather be Hanged for a Sheep than a Lamb: The Unintended Consequences of 'Three-Strikes' Laws By Radha Iyengar

  1. By: J. Vernon Henderson; Anthony Venables
    Abstract: This paper examines city formation in a country whose urban population is growing steadily over time, with new cities required to accommodate this growth. In contrast to most of the literature there is immobility of housing and urban infrastructure, and investment in these assets is taken on the basis of forward-looking behavior. In the presence of these fixed assets cities form sequentially, without the population swings in existing cities that arise in current models, but with swings in house rents. Equilibrium city size, absent government, may be larger or smaller than is efficient, depending on how urban externalities vary with population. Efficient formation of cities with internalization of externalities involves local government intervention and borrowing to finance development. The paper explores the institutions required for successful local government intervention.
    JEL: O1 O18 R0 R11
    Date: 2008–02
  2. By: Douglas Coate; Richard Schwester
    Abstract: The purpose of this paper is to examine black-white differences in housing appreciation in northern New Jersey, with particular emphasis on the communities of Montclair and Maplewood in the 1970 to 2000 period. We find that home appreciation at the block group level in these communities was inversely related to changes in the black population. The effect of changes in the proportion of the population that was black on home appreciation was similar to the effects of changes in black population at the census tract level in the northern New Jersey region as a whole. These high income communities with award winning school districts and well maintained housing stocks were not immune from the effects of race on home appreciation.
    Keywords: Black-white house appreciation
    JEL: R21
    Date: 2008–01
  3. By: Daniel Albalate (Faculty of Economics, University of Barcelona); Germa Bel (Faculty of Economics, University of Barcelona)
    Abstract: Congestion costs are emerging as one of the most important challenges faced by metropolitan planners and transport authorities in first world economies. In US these costs were as high as 78 million dollars in 2005 and are growing due to fast increases in travel delays. In order to solve the current and severe levels of congestion the US department of transportation have recently started a program to initiate congestion pricing in five metropolitan areas. In this context it is important to determine those factors helping its implementation and success, but also the problems or difficulties associated with charging projects. In this article we analyze worldwide experiences with urban road charging in order to extract interesting and helpful lessons for policy makers engaged in congestion pricing projects and for those interested in the introduction of traffic management tools to regulate the entrance to big cities.
    Keywords: Congestion, Road Pricing, Urban Transportation, Traffic Demand Management.
    JEL: L91 L98 R41 R48
    Date: 2008–01
  4. By: Miguel Urquiola (Columbia University - Department of Economics); Eric A. Verhoogen (Columbia University)
    Abstract: This paper examines how schools choose class size and how households sort in response to those choices. Focusing on the highly liberalized Chilean education market, we develop a model in which schools are heterogeneous in an underlying productivity parameter, class size is a component of school quality, households are heterogeneous in income and hence willingness to pay for school quality, and schools are subject to a class-size cap. The model offers an explanation for two distinct empirical patterns observed among private schools that accept government vouchers: (i) There is an inverted-U relationship between class size and household income in equilibrium, which will tend to bias cross-sectional estimates of the effect of class size on student performance. (ii) Some schools at the class size cap adjust prices (or enrollments) to avoid adding another classroom, which produces stacking at enrollments that are multiples of the class size cap. This generates discontinuities in the relationship between enrollment and household characteristics at those points, violating the assumptions underlying regression-discontinuity (RD) research designs. This result suggests that caution is warranted in applying the RD approach in settings in which parents have substantial school choice and schools are free to set prices and influence their enrollments.
    Date: 2007
  5. By: Loriana Pelizzon (Department of Economics, University Of Venice Cà Foscari); Guglielmo Weber (Department of Economics, University of Padua)
    Abstract: We address the issue of the efficiency of household portfolios in the presence of housing risk. We treat housing stock as an asset and rents as a stochastic liability stream: over the life-cycle, households can be short or long in their net housing position. Efficient financial portfolios are the sum of a standard Markowitz portfolio and a housing risk hedge term that multiplies net housing wealth. Our empirical results show that net housing plays a key role in determining which household portfolios are inefficient. The largest proportion of inefficient portfolios obtains among those with positive net housing, who should invest more in stocks.
    Keywords: Housing and portfolio choice, Portfolio efficiency, Rental risk, Life-cycle.
    JEL: D91 G11
    Date: 2007
  6. By: Sang-Wook Stanley Cho (School of Economics, The University of New South Wales)
    Abstract: This paper constructs a quantitative lifecycle model with uninsurable labor income and aggregate housing return risk to assess how Korean households make saving and portfolio allocation decisions. The model incorporates the special roles housing plays in the portfolio of households: collateral, a source of service flows, as well as a source of potential capital gains or losses. In the model, a household first makes the decision whether to rent or to buy a house and then chooses the housing value. The model adds to existing models of wealth accumulation some unique institutional features present in Korea, namely the rental system (`chonsae') and the lack of a mortgage system. When the model is calibrated to match the Korean economy, several key features of the data are better able to be reproduced. The paper also analyzes the role of institutional features by comparing several alternative housing market arrangements and the introduction of a pay-as-you-go social security system to assess their impact on wealth accumulation, portfolio choices, and the pattern of homeownership. I find that expanding the mortgage system significantly increases the homeownership ratio, while alternative rental arrangements have mixed effects on the homeownership ratio. All of the alternative market arrangements raise the fraction of household wealth invested into housing assets. I also find that the introduction of social security system will lower the overall savings in Korea by approximately 10% and lower the homeownership ratio by 6 percentage points.
    Keywords: Lifecycle model; Consumption; Wealth; Housing; Korea
    JEL: D91 E21 H31 R21
    Date: 2007–08
  7. By: Philip J. Cook
    Abstract: Urban crime rates in the United States fell markedly during the 1990s and remain at historically low levels. The statistical evidence presented here indicates that that decline, like the crime surge that preceded it, has been largely uncorrelated with changes in socioeconomic conditions across cities. The ups and downs of crime have a considerable effect on residential location and property values. The police represent the largest public expenditure in city-level crime control efforts, and they are increasingly held accountable for reducing crime rates. Indeed, there is considerable evidence that an increase in police expenditures does pay off in the form of lower crime rates. This is an incomplete story, however. Assessments of police effectiveness typically neglect the considerable role of private and community-level protection and control efforts, not to mention the vital importance of (uncompensated) private inputs into police investigations. In areas with endemically high violence rates, the reluctance of witnesses to cooperate remains a serious problem.
    JEL: K42 L1
    Date: 2008–02
  8. By: Rik Wenting; Oedzge Atzema; Koen Frenken
    Abstract: Urban economic growth and industrial clustering is traditionally explained by Marshallian agglomeration economies benefiting co-located firms. The focus on firms rather than people has been challenged by Florida arguing that urban amenities and a tolerant climate attract creative people, and the firms they work for, to certain cities. We analyse to what extent these two mechanisms affect the locational behaviour of Dutch fashion designers. On the basis of a questionnaire, we find that urban amenities are considered more important than agglomeration economies in entrepreneurs’ location decision. Designers located in the Amsterdam cluster do not profit from agglomeration economies as such, but rather from superior networking opportunities with peers both within and outside the cluster.
    Keywords: Agglomeration economies, urban amenities, creative class, fashion design, cultural industries, social networks, cluster
    Date: 2008–01
  9. By: Sang-Wook Stanley Cho (School of Economics, The University of New South Wales)
    Abstract: This paper constructs a quantitative general equilibrium lifecycle model with uninsurable labor income to account for the differences in the pattern of wealth accumulation across two countries, Korea and the United States. The model incorporates the differences in the housing market institution in the two countries, namely, the mortgage market and the rental market. As a focal point of the model, housing plays multiple roles for households: collateral as well as a source of service flows. The results from the calibrated model can quantitatively explain some empirical findings on the profile of wealth and homeownership in the aggregate as well as over the life cycle. The mortgage market can account for around 60 percent of the differences in the aggregate homeownership ratios in the two countries as well as 23 percent of the differences in the asset portfolio composition. However, the difference in the rental market does not play large role in accounting for the differences in wealth accumulation and homeownership patterns.
    Keywords: Lifecycle model; Consumption; Wealth; Housing Institution
    JEL: D91 E21 H31 R21
    Date: 2007–08
  10. By: Servaas Van der Berg
    Abstract: Massive differentials on achievement tests and examinations reflect South Africa’s divided past. Improving the distribution of educational outcomes is imperative to overcome labour market inequalities. Historically white and Indian schools still outperform black and coloured schools in examinations, and intraclass correlation coefficients (rho) reflect far greater between-school variance compared to overall variance than for other countries. SACMEQ’s rich data sets provide new possibilities for investigating relationships between educational outcomes, socio-economic status (SES), pupil and teacher characteristics, school resources and school processes. As a different data generating process applied in affluent historically white schools (test scores showed bimodal distributions), part of the analysis excluded such schools, sharply reducing rho. Test scores were regressed on various SES measures and school inputs for the full and reduced sample, using survey regression and hierarchical (multilevel) (HLM) models to deal with sample design and nested data. This shows that the school system was not yet systematically able to overcome inherited socio-economic disadvantage, and poor schools least so. Schools diverged in their ability to convert inputs into outcomes, with large standard deviations for random effects in the HLM models. The models explained three quarters of the large between-school variance but little of the smaller within-school variance. Outside of the richest schools, SES had only a mild impact on test scores, which were quite low in SACMEQ context.
    Keywords: Analysis of Education
    JEL: J21
    Date: 2008–01–16
  11. By: Matias Busso (University of Michigan); Patrick Kline (Cowles Foundation, Yale University)
    Abstract: This paper evaluates the impact of Round I of the federal urban Empowerment Zone (EZ) program on neighborhood level labor and housing market outcomes over the period 1994-2000. Using four decades of Census data in conjunction with information on the proposed boundaries of rejected EZs, we find that neighborhoods receiving EZ designation experienced substantial improvements in labor market conditions and moderate increases in rents relative to rejected and future zones. These effects were accompanied by small changes in the demographic composition of the neighborhoods, though evidence from disaggregate Census tabulations suggests that these changes account for little of the observed improvements.
    Keywords: Program evaluation, Local economic development, Empowerment zones
    JEL: H2 O1 R58 C21
    Date: 2008–02
  12. By: Jan Rouwendal; Willemijn van der Straaten
    Abstract: Although many researchers have investigated the value of open space in cities, few of them have compared them to the costs of providing this amenity. In this paper, we use the monocentric model of a city to derive a simple cost-benefit rule for the optimal provision of open space. The rule is essentially the Samuelson-condition for the optimal provision of a public good, with the price of land as the appropriate indicator for its cost. The condition is made operational by computing the willingness to pay for public and private space on the basis of empirical hedonic price functions for three Dutch cities. The conclusions with respect to the optimal provision of open space differ between the three cities.<BR> Further investigation reveals that willingness to pay for parks and public gardens increases with income, although not as fast as that for private residential space.
    Keywords: spatial planning; provision of public goods; cost-benefit analysis
    JEL: R52 H41 D61
    Date: 2008–01
  13. By: Rafael Lalive; Alejandra Cattaneo
    Abstract: The aim of this paper is to study whether schooling choices are affected by social interactions. Such social interactions may be important because children enjoy spending time with other children or parents learn from other parents about the ability of their children. Identification is based on a randomized intervention that grants a cash subsidy encouraging school attendance among a sub-group of eligible children within small rural villages in Mexico. Results indicate that (i) the eligible children tend to attend school more frequently, (ii) but also the ineligible children acquire more schooling when the subsidy is introduced in their local village, (iii) social interactions are economically important, and (iv) they may arise due to changes in parents’ perception of their children’s ability.
    Keywords: peer effects, schooling, field experiment, PROGRESA.
    JEL: C93 I21 I28
    Date: 2006–08
  14. By: Tyler, John (Brown University); Lofstrom, Magnus (Public Policy Institute of California)
    Abstract: We use data from the Texas Schools Microdata Panel (TSMP) to examine the extent to which dropouts use the GED as a route to post-secondary education. The paper develops a model pointing out the potential biases in estimating the effects of taking the “GED path” to postsecondary education. Lacking suitable instruments that would allow us to directly address potential biases, our approach is to base our estimates on a set of academically “at risk” students who are very similar in the 8th grade. We observe that the eventual high school graduates in this group have much better postsecondary education outcomes than do the similar at-risk 8th graders who dropped out and obtained a GED. Our model explains the observed differences, and allows for a discussion of the policy challenges inherent in improving the postsecondary outcomes of dropouts.
    Keywords: GED, dropouts, post-secondary education
    JEL: I2 J18
    Date: 2008–01
  15. By: Rainer Schulz; Axel Werwatz
    Abstract: According to housing investment models, house prices and replacement cost should have an equilibrating relationship. Previous empirical work mainly based on aggregate-level data has found only little evidence of such a relationship. By using a unique data set, covering transactions of single-family houses over a 25 years period, we establish strong support for the relationship at the micro level. In the time series context, we find that new house prices and replacement cost align quickly after a shock. In the cross-sectional context, we find prices of old houses and replacement cost are closely related once building depreciation has been taken into account. As to be expected from these results, replacement cost information also proves to be useful for the prediction of future house prices.
    Keywords: Tobin's Q, building depreciation, prediction accuracy
    JEL: C52 C53 R31
    Date: 2008–01
  16. By: Bjørn Asheim; Ron A. Boschma; Philip Cooke
    Abstract: The article presents a regional innovation policy model, based on the idea of constructing regional advantage. This policy model brings together concepts like related variety, knowledge bases and policy platforms. Related variety attaches great importance to knowledge spillovers across complementary sectors, possibly in a region. Then, the paper categorises knowledge into ‘analytical’ (science based), ‘synthetic’ (engineering based) and ‘symbolic’ (artistic based) in nature, with different ‘virtual’ and real proximity mixes. Finally, the implications of this are traced for evolving ‘platform policies’ that facilitate economic development within and between regions in action lines appropriate to related variety and differentiated knowledge bases.
    Keywords: Related variety; Differentiated knowledge bases; Platform policy, Regional innovation policy
    JEL: R11 R58 O38 B52
    Date: 2007–11
  17. By: Sergio Currarini (Department of Economics, University Of Venice Cà Foscari and School for Advanced Studies in Venice); Paolo Pin (Abdus Salam International Center for Theoretical Physics, Trieste and University of Venice); Matthew O. Jackson (Department of Economics, Stanford University and the Santa Fe Institute.)
    Abstract: We develop a model of friendship formation that sheds light on segregation patterns observed in social and economic networks. Individuals come in different types and have type-dependent benefits from friendships; we examine the properties of a steady-state equilibrium of a matching process of friendship formation. We use the model to understand three empirical patterns of friendship formation: (i) larger groups tend to form more same-type ties and fewer other-type ties than small groups, (ii) larger groups form more ties per capita, and (iii) all groups are biased towards same-type relative to demographics, with the most extreme bias coming from middle-sized groups. We trace each of these empirical observations to specific properties of the theoretical model and highlight the role of choice and chance in generating homophilous behavior. Finally we discuss welfare implications of the model.
    Keywords: Networks, Homophily, Segregation, Friendships, Social Networks, Integration, Diversity, Minorities
    JEL: D85 A14 J15 J16
    Date: 2007
  18. By: Christian N. Brinch, Bernt Bratsberg and Oddbjørn Raaum (Statistics Norway)
    Abstract: The national Norwegian school reform of 1994, which gave statutory right to at least three years of upper secondary education, had a significant impact on educational attainment among immigrant youth. In particular, we find that the immigrant transition rate from compulsory schooling to completion of the first year of upper secondary education improved from the pre- to the post-reform period. Using a sequential binomial logit framework, we present evidence that the improvement can be attributed to reductions in capacity constraints, rather than cohort heterogeneity. An important implication is that non-targeted educational reforms may have large impacts on the educational attainment of disadvantaged groups in general and ethnic minority youth in particular.
    Keywords: schooling transitions; immigrant youth; reform effects
    JEL: I21
    Date: 2008–01
  19. By: Thomas Tiemann (Department of Economics, Elon University); Cassandra DiRienzo (Department of Economics, Elon University); Jayoti Das (Department of Economics, Elon University)
    Abstract: The 2006 Congressional elections seemed to be about change, as well as the war in Iraq. The 2008 Presidential election, though only at the primary stage, seems to be about change as well as the war in Iraq and the faltering economy. What is the force behind Americans wanting “change?” Is it simply frustration or is it because of important changes in the economy and the demography of the United States? In his 2002 book, Richard Florida looked at one of those changes and developed a “creativity index” measuring the existence of creative people, economic activity, and cultural tolerance for Metropolitan Statistical Areas in the U.S. This study looks at the connection between the rise of the creative class, economic growth and voting patterns. We find that more creative metropolitan areas grow faster on average and creative areas are more likely to have voted Democratic in the past. Even after controlling for union membership, the presence of creative people explains how metropolitan areas voted in the 2004 Presidential election, hinting at one force behind Americans’ desire for political change.
    Date: 2008–02
  20. By: Thomas J. Holmes
    Abstract: The roll-out of Wal-Mart store openings followed a pattern that radiated from the center out with Wal-Mart maintaining high store density and a contiguous store network all along the way. This paper estimates the benefits of such a strategy to Wal-Mart, focusing on the savings in distribution costs afforded by a dense network of stores. The paper takes a revealed preference approach, inferring the magnitude of density economies by the extent of sales cannibalization from closely-packed stores that Wal-Mart is willing to sustain to achieve density economies. The model is dynamic with rich geographic detail on the locations of stores and distribution centers. Given the enormous number of possible combinations of store-opening sequences, it is difficult to directly solve Wal-Mart's problem, making conventional approaches infeasible. The moment inequality approach is used instead and it works well. The estimates show the benefits to Wal-Mart of high store density are substantial and likely extend significantly beyond savings in trucking costs.
    JEL: L11 L81
    Date: 2008–02
  21. By: Barrios, Salvador; Mas, Matilde; Navajas, Elena; Quesada, Javier
    Abstract: Factual evidence suggests that ICT-led growth and ICT-producing sectors are strongly localised geographically. Given that the nature of ongoing technological change and innovation dynamics has a strong local/regional component, public policies need to be designed at this level as well. However, little is known - if anything - of the regional impact of ICT. The present study documents the regional impact of ICT by mapping the location of the ICT industry in the EU25, analysing the volume and nature of ICT employment across European regions, identifying the determinants of EU regions’ attractiveness for ICT business location and, finally, assessing the contribution of ICT investment to regional growth and convergence. The study provides evidence for the prominent role played by the Computing Services sector in recent employment and skills' changes in the ICT industry, as well as for the emergence of new regional growth poles in the EU. Departing from traditional business models, this sector of activity presents relatively low sunk costs, especially in terms of physical capital requirement while having strong innovative and skills content, opening-up new opportunities for regional development in the EU. These factors also seem to explain much of the recent trends in ICT multinationals firms' location over the past decade. The study also shows that ICT capital investment tends to promote regional economic convergence. Regional policies aiming to promote regional cohesion must therefore consider ICT diffusion as a potentially important tool for the promotion of convergence throughout the EU. Importantly, ICT diffusion should also be accompanied by other policies and, in particular, policies aiming at improving education and skills levels. The study also shows that the absence of high ICT specialisation should not be seen as a major barrier to promoting the impact of ICT on regional development.
    Keywords: Information and Communication Technologica; European Union; Regions; Location; Employment; Qualifications Atractiveness
    JEL: R11 O3
    Date: 2008–01–31
  22. By: Alexander Cole
    Abstract: The knowledge-based theory of the geographic cluster represents a major attempt to re-conceptualize clusters, in essence arguing that the localization of firms in similar and related industries stimulates learning and innovation, giving a competitive advantage to clustered firms. This paper critically examines the knowledge-based theory the cluster, arguing that it has greatly overstated the advantages of co-location to firms and misidentified the mechanisms through which learning occurs in clusters. In particular, the theory is criticized on three points: the flexible, under-specified way that it defines its object of study; the focus on firms as an explanatory variable instead of more fundamental processes of resource accumulation; and the functionalist mode of theory that employs as an explanation. Ways to address of each of these issues are discussed. In a final section I suggest that the rather static notions of learning put forward in the knowledge-based theory of the cluster be replaced by a developmental theory of regional dynamics that focuses on both learning and structural transformation.
    Keywords: geographic cluster, localization, relatedness, knowledge-based theory
    Date: 2007–11
  23. By: Martin Brown; Christian Zehnder
    Abstract: We examine how asymmetric information and competition in the credit market affect voluntary information sharing between lenders. We study an experimental credit market in which information sharing can help lenders to distinguish good borrowers from bad ones, because borrowers may exogenously switch locations. Lenders, however, are also engaged in spatial competition, and lose market power by sharing information with close competitors. Our results suggest that more asymmetric information in the credit market increases information sharing behavior significantly. Stronger competition between lenders reduces information sharing, but its impact seems to be only of second order importance.
    Keywords: Credit Market, Information Sharing, Spatial Competition, Adverse Selection
    JEL: C92 G21 D82
    Date: 2007–04
  24. By: Francisco Azpitarte (Universidade de Vigo)
    Abstract: We analyse the distribution of household wealth in Spain using the first wave of the Spanish Survey of Household Finances, conducted by the Bank of Spain in 2002. We study the distribution of the different wealth components and, using inequality decomposition techniques, we assess the contribution of each element to overall wealth inequality. We find that wealth is more unequally distributed than income, while housing wealth is much more evenly distributed than financial wealth. Moreover, we identify two groups of wealth components: one disequalizing group, which includes financial wealth, whose value and portfolio share increase with household wealth; and a second more equalizing one, including housing wealth, whose value increases with wealth, but their share in the portfolio does not. Finally, we show that differences between age groups do not explain why wealth is much more unequally distributed than income. Instead, business and home ownership are factors that clearly contribute to explain this feature.
    Keywords: Wealth, income, distribution, inequality decomposition.
    JEL: D14 D31
    Date: 2008
  25. By: Daniel Albalate (Faculty of Economics, University of Barcelona); Germa Bel (Faculty of Economics, University of Barcelona)
    Abstract: The use of tolls is being widespread around the world. Its ability to fund infrastructure projects and to solve budget constraints have been the main rationale behind its renewed interest. However, less attention has been payed to the safety effects derived from this policy in a moment of increasing concern on road fatalities. Pricing best infrastructures shifts some drivers onto worse alternative roads usually not prepared to receive high traffic in comparable safety standards. In this paper we provide evidence of the existence of this perverse consequence by using an international European panel in a two way fixed effects estimation.
    Keywords: Road Safety, Tolls, Motorways and Transportation.
    JEL: H23 I18 R48
    Date: 2008–02
  26. By: John Leach
    Abstract: A model in which a high-productivity region and a low-productivity region bargain with each firm in a group of mobile firms is constructed. It differs from the Han and Leach [7] model in that the firms are identical, so that its comparative statics are more tractable. The model is used to examine the allocative effects of equalization payments (both non-contingent payments and "corrective subsidies"). The equilibrium is characterized by misallocation of capital and underprovision of public goods. Underprovision is more severe in the low-productivity region than the high-productivity region. A transfer of revenue from the high-productivity region to the low-productivity region augments public goods provision in the low-productivity region, allowing that region to make more generous offers to the firms. Likewise, underprovsion becomes more severe in the high-productivity region, so that its offers become less generous. Equilibrium is attained by a movement of firms from the high-productivity region to the low-productivity region, reducing the misallocation of capital.
    Date: 2008–01
  27. By: Paul L. Robertson (University of Tasmania); David Jacobson (Dublin City University); Richard N. Langlois (University of Connecticut)
    Abstract: In this survey, we examine the operations of innovation processes within industrial districts by exploring the ways in which differentiation, specialization, and integration affect the generation, diffusion, and use of new knowledge in such districts. We begin with an analysis of the importance of the division of labor and then investigate the effects of social embeddedness on innovation. We also consider the effect of forms of organization within industrial districts at various stages of product and process life, and we examine the negative aspects of embeddedness for innovation. We conclude with a discussion of the possible consequences of new information and communications technologies on innovation in industrial districts.
    Keywords: industrial districts, innovation, division of labor, embeddedness, information technology.
    JEL: L14 O31 R11
    Date: 2008–01
  28. By: Pierre Picard; Takatoshi Tabuchi
    Date: 2007
  29. By: Devereux, Paul (University College Dublin); Hart, Robert A. (University of Stirling)
    Abstract: Do students benefit from compulsory schooling? Researchers using changes in compulsory schooling laws as instruments have typically estimated very high returns to additional schooling that are greater than the corresponding OLS estimates and concluded that the group of individuals who are influenced by the law change have particularly high returns to education. That is, the Local Average Treatment Effect (LATE) is larger than the average treatment effect (ATE). However, studies of a 1947 British compulsory schooling law change that impacted about half the relevant population have also found very high instrumental variables returns to schooling (about 15%), suggesting that the ATE of schooling is also very high and higher than OLS estimates suggest. We utilize the New Earnings Survey Panel Data-set (NESPD), that has superior earnings information compared to the datasets previously used and find instrumental variable estimates that are small and much lower than OLS. In fact, there is no evidence of any positive return for women and the return for men is in the 4-7% range. These estimates provide no evidence that the ATE of schooling is very high.
    Keywords: compulsory schooling, return to education
    JEL: J01
    Date: 2008–01
  30. By: Maria Saez-Marti; Anna Sjögren
    Abstract: We analyze the evolution of culture when parents socialize children to the cultural variants that maximize child lifetime utility. Parents invest in cultural transmission taking into account that children are also influenced by peers. We model the influence of peers by assuming that children observe different cultural variants in their peer group, assign merit to them and adopt one variant, following a probabilistic adoption rule. We show that cultural diversity is sustainable even if all parents strive to transmit the same variant. We also show that a parental demand for cultural pluralism does not guarantee cultural diversity.
    Keywords: Cultural transmission, cultural diversity, peer groups, oblique transmission.
    JEL: D10 I20 J13
    Date: 2007–12
  31. By: Radha Iyengar
    Abstract: Strong sentences are common "tough on crime" tool used to reduce the incentives for individuals to participate in criminal activity. However, the design of such policies often ignores other margins along which individuals interested in participating in crime may adjust. I use California's Three Strikes law to identify several effects of a large increase in the penalty for a broad set of crimes. Using criminal records data, I estimate that Three Strikes reduced participation in criminal activity by 20 percent for second-strike eligible offenders and a 28 percent decline for third-strike eligible offenders. However, I find two unintended consequences of the law. First, because Three Strikes flattened the penalty gradient with respect to severity, criminals were more likely to commit more violent crimes. Among third-strike eligible offenders, the probability of committing violent crimes increased by 9 percentage points. Second, because California's law was more harsh than the laws of other nearby states, Three Strikes had a "beggar-thy-neighbor" effect increasing the migration of criminals with second and third-strike eligibility to commit crimes in neighboring states. The high cost of incarceration combined with the high cost of violent crime relative to non-violent crime implies that Three Strikes may not be a cost-effective means of reducing crime.
    JEL: J22 J58 K14
    Date: 2008–02

This nep-ure issue is ©2008 by Steve Ross. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.