nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2008‒07‒30
27 papers chosen by
Steve Ross
University of Connecticut

  1. On Amenities, Natural Advantage and Agglomeration By Krupka, Douglas J.
  2. School Competition and Efficiency with Publicly Funded Catholic Schools By David Card; Martin Dooley; Abigail Payne
  3. Predicting House Prices with Spatial Dependence: Impacts of Alternative Submarket Definitions By Steven C. Bourassa; Eva Cantoni; Martin Hoesli
  4. Housing Supply and Housing Bubbles By Edward L. Glaeser; Joseph Gyourko; Albert Saiz
  5. The Consequences of High School Exit Examinations for Struggling Low-Income Urban Students: Evidence from Massachusetts By John P. Papay; Richard J. Murnane; John B. Willett
  6. Evolution of the influence of geography on the location of production in Spain (1930-2005) By Chasco, Coro; López, Ana María
  7. Higher Education, the Health Care Industry, and Metropolitan Regional Economic Development: What Can “Eds & Meds” Do for the Economic Fortunes of a Metro Area’s Residents? By Timothy J. Bartik; George Erickcek
  8. Agglomeration within and between regions: Two econometric based indicators By Valter Di Giacinto; Marcello Pagnini
  9. The Agglomeration of US Ethnic Inventors By William R. Kerr
  10. How Does Industry Specialization Affect the Efficiency of Regional Innovation Systems? By Michael Fritsch; Viktor Slavtchev
  11. Home Bias: Asset Prices, Securitization of Mortgage Debt and International Risk Sharing By Mathias Hoffmann; Thomas Nitschka
  12. Area Regeneration and Tourism Development. Evidence from Three European Cities By Jan van der Borg; Antonio Russo
  13. Labour market for teachers: Demographic characteristics and allocative mechanisms By Gianna Barbieri; Piero Cipollone; Paolo Sestito
  14. Saving Your Home in Chapter 13 Bankruptcy By Michelle J. White; Ning Zhu
  15. Should You Compete or Cooperate with Your Schoolmates? By Bratti, Massimiliano; Checchi, Daniele; Filippin, Antonio
  16. Measuring the Importance of Labor Market Networks By Judith K. Hellerstein; Melissa McInerney; David Neumark
  17. The Impact of Social Capital on Crime: Evidence from the Netherlands By Akçomak, I. Semih; ter Weel, Bas
  18. The Plight of Mixed Race Adolescents By Roland G. Fryer, Jr; Lisa Kahn; Steven D. Levitt; Jörg L. Spenkuch
  19. Construction in Italy's regions, 1861-1913 By Ciccarelli, Carlo; Fenoaltea, Stefano
  20. Is Fiscal Decentralization Conflict Abating? Routine Violence and District Level Government in Java, Indonesia. By Mansoob Murshed; Zulfan Tadjoeddin
  21. Does Distance Determine Who Attends a University in Germany? By C. Katharina Spieß; Katharina Wrohlich
  22. Airport Choice in a Constraint World: Discrete Choice Models and Capacity Constraints By Gelhausen, Marc Christopher
  23. The Circular City with Heterogeneous Firms By Marco Alderighi; Claudio A. Piga
  24. Crime does pay (at least when it’s violent)!– On the compensating wage differentials of high regional crime levels By Nils Braakmann
  25. The Geography of Economics and Happiness By Luca Stanca
  26. Price level convergence, purchasing power parity and multiple structural breaks: An application to US cities By Syed A. Basher; Josep Lluis Carrión-i-Silvestre
  27. Credit risk models: why they failed in the credit crisis By Wilson Sy

  1. By: Krupka, Douglas J. (IZA)
    Abstract: A prominent feature of economic geography in America is the positive correlation amongst local incomes, housing costs and city population. This paper embeds a “black box” agglomeration economy within a more neoclassical general equilibrium model of local wages, rents and population to assess the ability of various conceptual models to predict this cross-sectional variation. I use exogenous changes in housing supply to induce changes in population and examine whether the changes in rents and wages move in the same direction under neo-classical assumptions, agglomeration economies in production, congestion in production, or urbanization economies in consumption. On their own, none of these urban scale effects generate the observed pattern. All urban scale effects generate a negative correlation between rents and population. Combining natural advantage with the urban scale effects improves the models’ output. It generally predicts positive correlations amongst the three variables, although some of these effects are ambiguous in the production agglomeration model. If natural advantage and housing supply constraints vary more-or-less independently, the results suggest a better fit of the data is provided by either the congestion in production or the agglomeration in consumption models. The micro-economics of such consumption-oriented agglomeration economies have received less attention than production-oriented agglomeration economies. The results of this model thus suggest that consumption-oriented agglomeration and congestion should receive more attention in the future.
    Keywords: agglomeration, urbanization economies, congestion, regional equilibrium, natural advantage, economic geography
    JEL: D5 J31 R12 R13 R23 R31
    Date: 2008–07
  2. By: David Card; Martin Dooley; Abigail Payne
    Abstract: The province of Ontario has two publicly funded school systems: secular schools (known as public schools) that are open to all students, and separate schools that are open to children with Catholic backgrounds. The systems are administered independently and receive equal funding per student. In this paper we use detailed school and student-level data to assess whether competition between the systems leads to improved efficiency. Building on a simple model of school choice, we argue that incentives for effort will be greater in areas where there are more Catholic families, and where these families are less committed to a particular system. To measure the local determinants of cross-system competition we study the effects of school openings on enrollment growth at nearby elementary schools. We find significant cross-system responses to school openings, with a magnitude that is proportional to the fraction of Catholics in the area, and is higher in more rapidly growing areas. We then test whether schools that face greater cross-system competition have higher productivity, as measured by test score gains between 3rd and 6th grade. We estimate a statistically significant but modest-sized impact of potential competition on the growth rate of student achievement. The estimates suggest that extending competition to all students would raise average test scores in 6th grade by 6-8% of a standard deviation.
    JEL: I21
    Date: 2008–07
  3. By: Steven C. Bourassa (University of Louisville, School of Urban and Public Affairs); Eva Cantoni (University of Geneva, Departement of Econometrics); Martin Hoesli
    Abstract: We analyze the impacts of alternative submarket definitions when predicting house prices in a mass appraisal context, using both ordinary least squares (OLS) and geostatistical techniques. For this purpose, we use over 13,000 housing transactions for Louisville, Kentucky. We use districts defined by the local property tax assessment office as well as a classification of census tracts generated by principal components and cluster analysis. We also experiment with varying numbers of census tract groupings. Our results indicate that somewhat better results are obtained with more homogeneous submarkets. Also, the accuracy of house price predictions increases as the number of submarkets is increased, but then quickly levels off. Adding submarket variables to the OLS model yields price predictions that are as accurate as when geostatistical methods are used to account for spatial dependence in the error terms. However, using both dummy variables for submarkets and geostatistical methods leads to significant increases in accuracy.
    Keywords: spatial dependence, hedonic price models, geostatistical models, mass appraisal, housing submarkets.
    JEL: C11 D58 D84 D91
    Date: 2008–01
  4. By: Edward L. Glaeser; Joseph Gyourko; Albert Saiz
    Abstract: Like many other assets, housing prices are quite volatile relative to observable changes in fundamentals. If we are going to understand boom-bust housing cycles, we must incorporate housing supply. In this paper, we present a simple model of housing bubbles that predicts that places with more elastic housing supply have fewer and shorter bubbles, with smaller price increases. However, the welfare consequences of bubbles may actually be higher in more elastic places because those places will overbuild more in response to a bubble. The data show that the price run-ups of the 1980s were almost exclusively experienced in cities where housing supply is more inelastic. More elastic places had slightly larger increases in building during that period. Over the past five years, a modest number of more elastic places also experienced large price booms, but as the model suggests, these booms seem to have been quite short. Prices are already moving back towards construction costs in those areas.
    JEL: G12 R1 R31
    Date: 2008–07
  5. By: John P. Papay; Richard J. Murnane; John B. Willett
    Abstract: The growing prominence of high-stakes exit examinations has made questions about their effects on student outcomes increasingly important. We take advantage of a natural experiment to evaluate the causal effects of failing a high-stakes test on high school completion for the cohort scheduled to graduate from Massachusetts high schools in 2006. With these exit examinations, states divide a continuous performance measure into dichotomous categories, so students with essentially identical performance may have different outcomes. We find that, for low-income urban students on the margin of passing, failing the 10th grade mathematics examination reduces the probability of on-time graduation by eight percentage points. The large majority (89%) of students who fail the 10th grade mathematics examination retake it. However, although we find that low-income urban students are just as likely to retake the test as apparently equally skilled suburban students, they are much less likely to pass this retest. Furthermore, failing the 8th grade mathematics examination reduces by three percentage points the probability that low-income urban students stay in school through 10th grade. We find no effects for suburban students or wealthier urban students.
    JEL: I21
    Date: 2008–07
  6. By: Chasco, Coro; López, Ana María
    Abstract: In this paper, we investigate the relative importance of geographic features on the location of production in Spain. Specifically, we want to quantify how much of the spatial pattern of GDP can be attributed to only exoge-nous first nature elements (physical and political geography) and how much can be derived from endogenous second nature factors (man-made agglomeration economies). In order to disentangle both effects empiri-cally, and to learn how they are interrelated, we control for second nature. We use a methodology based on an analysis of variance (ANOVA), which is applied to a panel of 47 Spanish provinces in the period 1930-2005. We demonstrate that results can be biased if spatial autocorrelation and spatial heterogeneity, as well as multicollinearity and endogeneity, are not prop-erly taken into account. In the Spanish case, we detect strong spatial het-erogeneity in the form of two main clusters. As expected, gross second na-ture forces are more important than net natural advantages, though their effects range from about 55% in the hinterland to 80% in the coast.
    Keywords: Agglomeration; Geography; Spatial Heterogeneity; Endogeneity; Spanish Regions
    JEL: R12 C21
    Date: 2008–02–03
  7. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research); George Erickcek (W.E. Upjohn Institute for Employment Research)
    Abstract: This paper examines the effects of expansions in higher educational institutions and the medical service industry on the economic development of a metropolitan area. This examination pulls together previous research and provides some new empirical evidence. We provide quantitative evidence of the magnitude of economic effects of higher education and medical service industries that occur through the mechanism of providing some export-base demand stimulus to a metropolitan economy. We also provide quantitative evidence on how much higher education institutions can boost a metropolitan economy through increasing the educational attainment of local residence. We estimate that medical service industries pay above average wages, holding worker characteristics constant, whereas the higher education industry pays below average wages; the wage standards of these industries may affect overall metropolitan wages. We also discuss other mechanisms by which these two industries may boost a metropolitan economy, including: increasing local amenities, generating R&D spillovers, increasing the rate of entrepreneurship in local businesses, and helping provide local leadership on development and growth issues. Finally, the paper discusses possible effects of these two industries on disparities between the central city and suburbs in a metropolitan area.
    Keywords: higher, education, medical, service, industry, regional, economic, development
    JEL: R58 R11 R23 R53
    Date: 2007–02
  8. By: Valter Di Giacinto (Bank of Italy, LÂ’Aquila Branch, Economic Research Unit); Marcello Pagnini (Bank of Italy, Bologna Branch, Economic Research Unit)
    Abstract: We propose two indexes to measure the agglomeration forces acting within and between different regions. Unlike the existing measures of agglomeration, our model-based indexes allow for simultaneous treatment of both aspects. Local plant diffusion in a given industry is modelled as a spatial error components process (SEC). Maximum likelihood inference on model parameters is dealt with, including the problem of data censoring. The statistical properties of standard agglomeration indexes in the data environment provided by our SEC model are then treated. Finally, our methodology is applied to Italian census data for both manufacturing and service industries.
    Keywords: agglomeration, spatial autocorrelation, spatial error components model
    JEL: R12 L70 C19
    Date: 2008–06
  9. By: William R. Kerr (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: The ethnic composition of US inventors is undergoing a significant transformation - with deep impacts for the overall agglomeration of US innovation. This study applies an ethnic-name database to individual US patent records to explore these trends with greater detail. The contributions of Chinese and Indian scientists and engineers to US technology formation increase dramatically in the 1990s. At the same time, these ethnic inventors became more spatially concentrated across US cities. The combination of these two factors helps stop and reverse long-term declines in overall inventor agglomeration evident in the 1970s and 1980s. The heightened ethnic agglomeration is particularly evident in industry patents for high-tech sectors, and similar trends are not found in institutions constrained from agglomerating (e.g., universities, government).
    Keywords: Agglomeration, Innovation, Research and Development, Patents, Scientists, Engineers, Inventors, Ethnicity, Immigration.
    JEL: F15 F22 J44 J61 O31
    Date: 2008–07
  10. By: Michael Fritsch (Friedrich-Schiller-University Jena, Faculty of Economics and Business Administration; Max Planck Institute of Economics, Jena, Germany); Viktor Slavtchev (Max Planck Institute of Economics, Jena, Germany)
    Abstract: This study analyzes the relationship between the specialization of a region in certain industries and the efficiency of the region in generating new knowledge. The efficiency measure is constructed by relating regional R&D input and output. An inversely u-shaped relationship is found between regional specialization and R&D efficiency, indicating the presence of externalities of both Marshall and Jacobs’ type. Further factors influencing efficiency are spillovers within the private sector as well as from public research institutions. The impact of both the specialization and the additional factors is, however, different for regions at different efficiency levels.
    Keywords: Efficiency, innovation, spillovers, patents, regional analysis.
    JEL: O31 O18 R12
    Date: 2008–07–17
  11. By: Mathias Hoffmann; Thomas Nitschka
    Abstract: We study the impact of global asset price fluctuations on the international allocation of consumption risk at the business cycle frequency in a cross-section of 16 industrialized countries. International risk sharing increases when global equity prices are high and decreases when they are low. In explaining this finding, we focus on the differential degree of international integration of residential housing and equity markets. We argue that globally high equity prices increase the effective international diversification of the average country's national portfolio. Conversely, relatively high housing prices increase the weight of domestic assets in national portfolios - they literally worsen the home bias. In line with this mechanism, we find that global equity prices are good predictors of major portfolio shifts between housing and equity in most of the economies we study. In addition, the dependence of international risk sharing on the global equity price cycle is much less pronounced in countries where the securitization of mortgage-related debt is widely used: securitization seems to play an important role in improving international risk sharing by making mortgage-related risks internationally tradeable.
    Keywords: Asset prices, portfolio shifts, wealth effects, housing, equity, international risk sharing, securitization, mortgages.
    JEL: F36 F37 F41 G15 G21
    Date: 2008–07
  12. By: Jan van der Borg (Department of Economics, University Of Venice Ca’ Foscari); Antonio Russo (University Rovira i Virgili, Tarragona, Spain)
    Abstract: This paper discusses a key issue in the framework of modern urban development policies: the role of cultural tourism in processes of urban transformation. The analysis focuses specifically on how the emphasis on the symbolic in the restructuring of certain areas of the city may function like a spinwheel for the regeneration of urban economies, and on the stability of this process. The paper presents the cases of three European cities -Barcelona, Manchester and Rotterdam-, all of which are believed to be templates in cultural planning, and have been successful, to different extents, as tourism destinations. In the three cities, the peculiar relationship between area renewal through cultural development projects and tourism has unravelled in different ways that are revelatory of structural, as well as contingent, differences in tourism policy organisation and contexts, and that present different challenges for the future.
    JEL: O52 R00 R58 Z10
    Date: 2008
  13. By: Gianna Barbieri (Ministry of Education); Piero Cipollone (Bank of Italy, Economic Research Department); Paolo Sestito (Bank of Italy, Economic Research Department)
    Abstract: The paper considers the teachers’ labour market in Italy. The quality and motivation of teachers are certainly among the determinants of pupils’ achievement, but they are difficult to measure, so we examine the composition of the pool of teachers and their behaviour to infer information about them. We look also at the institutional features that motivate the implicit contract that drives Italian teachers' behaviour, which essentially involves low salary and correspondingly low commitment and effort. In particular we examine the mechanism that allocates teachers to schools. For each school we construct three indicators; one indicating the level of turnover, which we interpret as a source of turmoil; one that refers to the mismatch between tenured teachers and their school; and a “revealed preferences indicator” that measures the schools’ quality as evaluated by the population of tenured teachers. We measure the association at the school level of our indicators with achievement as gauged by PISA 2003. Students scores are correlated negatively to the turnover and the mismatch indicators, positively to revealed preferences.
    Keywords: Teachers labour market, Italian educational system
    JEL: I20 I21 I28
    Date: 2008–06
  14. By: Michelle J. White; Ning Zhu
    Abstract: This paper examines how filing for bankruptcy under Chapter 13 helps financially distressed debtors save their homes. Filing under Chapter 13 stops lenders from foreclosing and gives debtors extra time to repay mortgage arrears, but does not reduce the total amount owed. We develop a model of debtors' decisions to default on their mortgages and file for bankruptcy and we evaluate it using a new dataset of debtors who filed for bankruptcy under Chapter 13 in 2006. We also examine the effect of allowing "strip-down" of residential mortgages in Chapter 13, so that bankruptcy judges could reduce the total amount owed. The paper documents that 96% of Chapter 13 filers are homeowners and that more than 90% of Chapter 13 plans involve repayment of mortgages or car loans. The model predicts that introducing strip-down would allow an additional 100,000 debtors to save their homes each year.
    JEL: G33 G38 K35 R31
    Date: 2008–07
  15. By: Bratti, Massimiliano (University of Milan); Checchi, Daniele (University of Milan); Filippin, Antonio (University of Milan)
    Abstract: Building upon some education studies finding that cooperative behaviour in class yields better achievements among students, this paper presents a simple model showing that free riding incentives lead to an insufficient degree of cooperation between schoolmates, which in turn decreases the overall achievement. A cooperative learning approach may instead emerge when competitive behaviour is negatively evaluated by schoolmates, especially when the class is more homogeneous in terms of students’ characteristics (e.g., ability). Empirical evidence supporting our model is found using the 2003 wave of the OECD Programme for International Student Assessment (PISA) survey on students’ literacy levels. A competitive learning approach has a positive individual return (higher in comprehensive educational systems), while student performance increases with the average cooperative behaviour, particularly in tracked educational systems.
    Keywords: cooperation, competition, PISA, student attitudes
    JEL: I21 J24
    Date: 2008–07
  16. By: Judith K. Hellerstein; Melissa McInerney; David Neumark
    Abstract: We specify and implement a test for the importance of network effects in determining the establishments at which people work, using recently-constructed matched employer-employee data at the establishment level. We explicitly measure the importance of network effects for groups broken out by race, ethnicity, and various measures of skill, for networks generated by residential proximity. The evidence indicates that labor market networks play an important role in hiring, more so for minorities and the less-skilled, especially among Hispanics, and that labor market networks appear to be race-based.
    JEL: J15 J61
    Date: 2008–07
  17. By: Akçomak, I. Semih (Maastricht University); ter Weel, Bas (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This paper investigates the relation between social capital and crime. The analysis contributes to explaining why crime is so heterogeneous across space. By employing current and historical data for Dutch municipalities and by providing novel indicators to measure social capital, we find a link between social capital and crime. Our results suggest that higher levels of social capital are associated with lower crime rates and that municipalities’ historical states in terms of population heterogeneity, religiosity and education affect current levels of social capital. Social capital indicators explain about 10 percent of the observed variance in crime. It is also shown why some social capital indicators are more useful than others in a robustness analysis.
    Keywords: social capital, crime, the Netherlands
    JEL: A13 A14 K42 Z13
    Date: 2008–07
  18. By: Roland G. Fryer, Jr; Lisa Kahn; Steven D. Levitt; Jörg L. Spenkuch
    Abstract: Over the past 40 years the fraction of mixed race black-white births has increased nearly nine-fold. There is little empirical evidence on how these children fare relative to their single-race counterparts. This paper describes basic facts about the plight of mixed race individuals during their adolescence and early adulthood. As one might expect, on a host of background and achievement characteristics, mixed race adolescents fall in between whites and blacks. When it comes to engaging in risky/anti-social adolescent behavior, however, mixed race adolescents are stark outliers compared to both blacks and whites. We argue that these behavioral patterns are most consistent with the "marginal man" hypothesis, which we formalize as a two-sector Roy model. Mixed race adolescents -- not having a natural peer group -- need to engage in more risky behaviors to be accepted. All other models we considered can explain neither why mixed race adolescents are outliers on risky behaviors nor why these behaviors are not strongly influenced by the racial composition at their school.
    JEL: J28
    Date: 2008–07
  19. By: Ciccarelli, Carlo; Fenoaltea, Stefano
    Abstract: This paper presents time-series estimates of construction activity in the regions of post-Unification Italy. Total construction followed very different time paths, reflecting the sharply local cycles in railway construction. Other public works were less idiosyncratic; the boom of the Giolitti years was widely diffused, but that of the 1880s was much more concentrated in Latium and Liguria. In the construction of buildings, the Giolittian boom was marked in the North and Center, but spotty in the South and major islands; earlier swings were comparatively minor, save of course for the 1880s bubble in Latium. Over the long term, railway construction was, per-capita, relatively evenly spread. Other social-overhead construction displays a similar pattern, but with exceptionally high levels in Latium and Liguria. Building construction seems instead to have declined somewhat from North to South; Liguria was again the overall leader, with Latium second.
    JEL: N63 N93 L74
    Date: 2008
  20. By: Mansoob Murshed (Institute of Social Studies, The Hague); Zulfan Tadjoeddin (Institute of Social Studies, The Hague)
    Abstract: Utilising a newly created data set we examine the relationship between routine/everyday violence and fiscal decentralization in 98 districts of the Indonesian island of Java. By examining possible relationships between fiscal decentralization and routine violence, this paper fills a gap in the literature where the analysis of the relation between fiscal decentralization and violence is relatively scant. Routine violence, which is different from both civil war and ethno-communal conflict, centres around group brawls, popular justice or vigilante violence. Despite the uniform implementation of fiscal decentralization, sub-national entities exhibit varying experiences with decentralization, but a common consequence is the increased size of local government. Fiscal decentralization, and the increased size of local government, can alleviate pent-up frustrations with a centralized state, as local government expenditure is seen to satisfy the needs of communities that people identify with more closely. Our results show that this is indeed the case, but the capacity to do so mainly lies with richer districts.
    Keywords: Asia, Indonesia, routine violence, fiscal decentralization
    JEL: D74 H71 H72
    Date: 2008
  21. By: C. Katharina Spieß; Katharina Wrohlich
    Abstract: We analyze the role of distance from a university in the decision to attend higher education in Germany. Students who live near a university can avoid moving and the increased living expenses by commuting. Thus, transaction cost arguments would suggest that the greater the distance to the nearest university, the lower the participation in higher education. We analyse this hypothesis by combining data from the German Socio-Economic Panel Study (SOEP) with a database from the German Rectors¿ Conference on university postal codes. Based on a discrete time hazard rate model we show that distance to the next university at the time of completing high school significantly affects the decision to enrol in tertiary education. Controlling for many other socio-economic and regional variables, we find that 1 kilometre distance decreases the probability to enrol in higher education by 0.2 ¿ 0.3 percentage points
    Keywords: Higher education, distance to university, competing risk model
    JEL: I2 R1
    Date: 2008
  22. By: Gelhausen, Marc Christopher
    Abstract: The purpose of this paper is to present a new approach to model capacity constraints in discrete choice with at least some capacity-related variables missing, like e.g. the price of a commodity. Airport choice models often do not contain air fares because of measurement difficulties as air fares are often not included in passenger surveys and thus essential information regarding ticket price is lost to the researcher. Since air fares vary more across ticket categories at an airport than a ticket category varies across different airports, air fare related information cannot be reconstructed in many cases by the researcher. However, capacity constraints are becoming increasingly more important and thus including capacity constraints in airport choice models is reasonable. The model approach is based on individual utility maximisation and thus fits into the discrete choice framework. Furthermore, nonlinear programming is employed to find a feasible solution regarding capacity constraints. Thereby, detailed statements on how limited airport capacity changes traveller behaviour with regard to airport choice on the level of individual air travellers and airports are possible. The paper concludes with an empirical example to demonstrate the methodology and show the impact of limited airport capacity on airport choice of air travellers.
    Keywords: Airport and Access Mode Choice; Capacity Constraints; Choice Behaviour; Discrete Choice; Nonlinear Programming
    JEL: C53 C61 C25
    Date: 2008–07
  23. By: Marco Alderighi (University of Valle d'Aosta, Italy.); Claudio A. Piga (Dept of Economics, Loughborough University)
    Abstract: The paper extends the Salop model of localized competition by allowing firms to have heterogeneous costs. We provide a general but highly tractable analytical solution for the equilibrium prices, and we study the long-run properties of the model using two different entry games. We show that cost heterogeneity affects the efficiency of the market equilibrium by increasing welfare and inducing less excessive entry. Further, we illustrate the positive effects of the existence of a selection mechanism, which induces less efficient firms not to start production. The model also replicates some recent results on dense markets.
    Keywords: Localized competition; market effciency, cost heterogeneity; large markets.
    JEL: L11 D61
    Date: 2008–07
  24. By: Nils Braakmann (Institute of Economics, Leuphana University of Lüneburg)
    Abstract: This paper investigates whether high regional crime levels lead to a compensating wage differential paid by firms in the respective region. Using data from German social security records and official police statistics for 2003 to 2006, we consider both violent and non-violent crimes and use three-way error-components estimators to control for individual and regional heterogeneity. Our findings suggest a positive and rather large compensating differential for the risk of falling victim to a violent crime while no such effect exists for other criminal activities. However, our results also suggest that the wage effects for most individuals are rather small due to small variation in the crime rates.
    Keywords: Compensating wage differentials, crime, three-way error-components model
    JEL: J31
    Date: 2008–07–21
  25. By: Luca Stanca
    Abstract: This paper investigates the spatial pattern of the e®ects of eco- nomic conditions on subjective well-being, using a large sample of in- dividuals from 81 countries throughout the world. We ¯nd evidence of substantial spatial heterogeneity and spatial dependence in the cross- country distribution of the e®ects of income and unemployment on happiness. We examine the impact of macroeconomic conditions on country-level sensitivities of subjective well-being to microeconomic conditions. The e®ect of income on well-being is found to be signif- icantly stronger in countries with lower GDP per capita and higher unemployment rate. The e®ect of unemployment on well-being is in- stead signi¯cantly stronger in countries with higher GDP per capita and higher unemployment rate.
    Keywords: subjective well-being, economic geography, spatial econometrics
    JEL: A12 D12 I31
    Date: 2008–06
  26. By: Syed A. Basher (Department of Economic Policies, Qatar Central Bank, Doha, Qatar.); Josep Lluis Carrión-i-Silvestre (AQR-IREA, University of Barcelona.)
    Abstract: This article provides a fresh methodological and empirical approach for assessing price level convergence and its relation to purchasing power parity (PPP) using annual price data for seventeen US cities. We suggest a new procedure that can handle a wide range of PPP concepts in the presence of multiple structural breaks using all possible pairs of real exchange rates. To deal with cross-sectional dependence, we use both cross-sectional demeaned data and a parametric bootstrap approach. In general, we find more evidence for stationarity when the parity restriction is not imposed, while imposing parity restriction provides leads toward the rejection of the panel stationar- ity. Our results can be embedded on the view of the Balassa-Samuelson approach, but where the slope of the time trend is allowed to change in the long-run. The median half-life point estimate are found to be lower than the consensus view regardless of the parity restriction.
    Date: 2008–07
  27. By: Wilson Sy (Australian Prudential Regulation Authority)
    Abstract: Abstract: Credit risk models are shown to play a key part in the global credit crisis. We discuss how the credit market has exposed the shortcomings of the credit risk models and we identify their main shortcomings. To overcome the shortcomings, a new causal framework is proposed to build deductive credit default models which have predictive capabilities.
    Date: 2008–07–10

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