nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2008‒08‒31
23 papers chosen by
Steve Ross
University of Connecticut

  1. The Economic Approach to Cities By Glaeser, Edward L.
  2. A New Perspective on the Relationship Between House Prices and Income By Quan Gan; Robert J. Hill
  3. Measuring the Value of a Moscow Apartment: a Spatial Approach to the Hedonic Pricing of Attributes By Repkine, Alexandre
  4. Arbitrage in Housing Markets By Glaeser, Edward L.; Gyourko, Joseph
  5. The Entrepreneurial Advantage of World Cities - Evidence from Global Entrepreneurship Monitor Data By Zoltan Acs; Niels Bosma; Rolf Sternberg
  6. Market potential as an indicator for the size of a new relocated football arena: The case KAA Gent a Belgian professional football team By Trudo Dejonghe
  7. Selection Bias in College Admissions Test Scores By Melissa Clark; Jesse Rothstein; Diane Whitmore Schanzenbach
  8. Did the Death of Distance Hurt Detroit and Help New York? By Glaeser, Edward L.; Ponzeto, Giacomo A. M.
  9. Industrial Agglomeration, Geographic Innovation and Total Factor Productivity: The Case of Taiwan By Chia-Lin Chang; Les Oxley
  10. The Cost of Grade Retention By Marco Manacorda
  11. Is Terrorism Eroding Agglomeration Economies in Central Business Districts? Lessons from the Office Real Estate Market in Downtown Chicago By Abadie, Alberto; Dermisi, Sofia
  12. Investable Tax Credits: The Case of the Low Income Housing Tax Credit By Desai, Mihir; Dharmapala, Dhammika; Singhal, Monica
  13. Crossing the Line: The Effect of Cross Border Cigarette Sales on State Excise Tax Revenues By Chiou, Lesley; Muehlegger, Erich
  14. School Tracking and Access to Higher Education Among Disadvantaged Groups By Ofer Malamud; Cristian Pop-Eleches
  15. The Impact of College Graduation on Geographic Mobility: Identifying Education Using Multiple Components of Vietnam Draft Risk By Ofer Malamud; Abigail Wozniak
  16. The Impact of a Cash Transfer Program on Cognitive Achievement: The Bono de Desarrollo Humano of Ecuador By Ponce, Juan; Bedi, Arjun S.
  17. Social Interactions and Smoking By Cutler, David; Glaeser, Edward L.
  18. Creative Destruction and Regional Productivity Growth: Evidence from the Dutch Manufacturing and Services Industries By Niels Bosma; Erik Stam; Veronique Schutjens
  19. Evolution of Locations, Specialisation and Factor Returns with Two Distinct Waves of Globalisation By Jang Ping Thia
  20. "Domestic Innovation and Chinese Regional Growth, 1991-2004" By William Latham; Hong Yin
  21. Social Interactions in Demand By Grodner, Andrew; Kniesner, Thomas J.
  22. The Role of Microenterprises in Economic Growth: A Panel Study of Wisconsin Counties 1977 to 1997 By Deller, Steven C.
  23. Racial Discrimination and Competition By Ross Levine; Alexey Levkov; Yona Rubinstein

  1. By: Glaeser, Edward L. (Harvard U)
    Abstract: The economic approach to cities relies on a spatial equilibrium for workers, employers and builders. The worker’s equilibrium implies that positive attributes in one location, like access to downtown or high wages, are offset by negative attributes, like high housing prices. The employer’s equilibrium requires that high wages be offset by a high level of productivity, perhaps due to easy access to customers or suppliers. The search for the sources of productivity differences that can justify high wages is the basis for the study of agglomeration economies which has been a significant branch of urban economics in the past 20 years. The builder’s equilibrium condition pushes us to understand the causes of supply differences across space that can explain why some places have abundant construction and low prices while others have little construction and high prices. Since the economic theory of cities emphasizes a search for exogenous causes of endogenous outcomes like local wages, housing prices and city growth, it is unsurprising that the economic empirics on cities have increasingly focused on the quest for exogenous sources of variation. The economic approach to urban policy emphasizes the need to focus on people, rather than places, as the ultimate objects of policy concern and the need for policy to anticipate the mobility of people and firms.
    Date: 2008–01
  2. By: Quan Gan (School of Economics, University of New South Wales); Robert J. Hill (School of Economics, University of New South Wales)
    Abstract: We show that a strong linear relationship exists between income and house price quantiles in Sydney (Australia), Houston, and the state of Texas. This suggests that the house price distribution is closely approximated by the income distribution after a location-scale transformation. The slope of the line changes over time in response to changes in the mortgage market. We argue that this finding is consistent with a simple variant on the permanent income hypothesis. We then explore some of the implications with regard to the evolution of house prices, price-to-income ratios, the efficiency of the housing market, the construction and interpretation of hedonic price indexes for housing, and for public policy.
    Keywords: Real Estate; Permanent income; Mortgage market; Housing bubble; Hedonic index
    JEL: C43 E01 E31 G12 R31
    Date: 2008–08
  3. By: Repkine, Alexandre
    Abstract: In this paper we explore spatial effects in a hedonic price function framework for a large sample of apartments in Moscow. We find strong evidence of both spatial lag and spatial autocorrelation. Our results are robust across both the spatial model specifications and the choice of the spatial weight matrices. The fact that the quality attributes’ shadow prices we estimate are not much different from the OLS (ML) estimates suggests that spatial effects are orthogonal to the quality characteristics. One interesting finding is that an increase in the kitchen area contributes much more significantly to the apartment’s price compared a marginal increase in the living area, which is reflecting the traditional role kitchen has been playing in the Russian households as a dining and communication area. House type, time needed to walk to the nearest subway station and subway time to the city center are other important apartment attributes. Methodologically, we believe our study is demonstrating the need to develop spatial econometric techniques for application in the environment where both types of spatial effects are simultaneously present.
    Keywords: spatial models; housing market; hedonic price functions
    JEL: R12 C21 R21
    Date: 2008–03
  4. By: Glaeser, Edward L. (Harvard U); Gyourko, Joseph (U of Pennsylvania)
    Abstract: Urban economists understand housing prices with a spatial equilibrium approach that assumes people must be indifferent across locations. Since the spatial no arbitrage condition is inherently imprecise, other economists have turned to different no arbitrage conditions, such as the prediction that individuals must be indifferent between owning and renting. This paper argues the predictions from these non-spatial, financial no arbitrage conditions are also quite imprecise. Owned homes are extremely different from rental units and owners are quite different from renters. The unobserved costs of home owning such as maintenance are also quite large. Furthermore, risk aversion and the high volatility of housing prices compromise short-term attempts to arbitrage by delaying home buying. We conclude that housing cannot be understood with a narrowly financial approach that ignores space any more than it can be understood with a narrowly spatial approach that ignores asset markets.
    Date: 2008–03
  5. By: Zoltan Acs (George Mason University, Washington D.C.and Max Planck Institute of Economics); Niels Bosma (Utrecht University, EIM Business + Policy Research, Global Entrepreneurship Research Association); Rolf Sternberg (University of Hannover)
    Abstract: Recent discussions in the Economic Geography literature increasingly focus on creative cities and the importance of creativity for achieving economic growth. Considering the increased attention on urban areas it is not surprising that the regional dimension of entrepreneurship is a subject of great interest. We set out a framework encompassing the individual process between entrepreneurial perceptions and entrepreneurial activity and demonstrate how the urban environment can have an impact on this process. We create entrepreneurship indices for 34 world cities exploiting the Global Entrepreneurship Monitor (GEM) Database 2001-2006. We investigate differences between the city-level and country-level for a selection of the indices. These exercises can be seen as initial tests of the ‘entrepreneurial advantage of cities.’ Based on the literature we expect that most indices will be higher for world cities, although exceptions are also plausible, for instance in world cities where the government resides. Our findings predominantly confirm the entrepreneurial advantage of world cities.
    Keywords: entrepreneurship, world cities, entrepreneurial perceptions, entrepreneurial activity, urbanization, Global Entrepreneurship Monitor
    JEL: R11 M13 O18
    Date: 2008–08–22
  6. By: Trudo Dejonghe (Lessius Hogeschool (KULeuven), Belgium)
    Abstract: The place of Gent in the urban system is that of a regional city with high centrality. This means that consumer-oriented services with a high threshold, such as a professional football team, reach their threshold in the city. In the case of professional football a functional substitution has taken place and the top team is located in Brugge The service area of Bruges reaches almost up to Gent and the E40 highway reduces the time-distance. The new location of the stadium is near the main highway.. The question is of the market potential of the clubs is large enough to attract more attendances.
    Keywords: local identity, relocation, functional substitution, service area, market potential, consumer oriented service, spatial competition
    JEL: L83
    Date: 2008–08
  7. By: Melissa Clark; Jesse Rothstein; Diane Whitmore Schanzenbach
    Abstract: Data from college admissions tests can provide a valuable measure of student achievement, but the non-representativeness of test-takers is an important concern. We examine selectivity bias in both state-level and school-level SAT and ACT averages. The degree of selectivity may differ importantly across and within schools, and across and within states. To identify within-state selectivity, we use a control function approach that conditions on scores from a representative test. Estimates indicate strong selectivity of test-takers in "ACT states," where most college-bound students take the ACT, and much less selectivity in SAT states. To identify within- and between-school selectivity, we take advantage of a policy reform in Illinois that made taking the ACT a graduation requirement. Estimates based on this policy change indicate substantial positive selection into test participation both across and within schools. Despite this, school-level averages of observed scores are extremely highly correlated with average latent scores, as across-school variation in sample selectivity is small relative to the underlying signal. As a result, in most contexts the use of observed school mean test scores in place of latent means understates the degree of between-school variation in achievement but is otherwise unlikely to lead to misleading conclusions.
    JEL: C24 I2 J24
    Date: 2008–08
  8. By: Glaeser, Edward L. (Harvard U); Ponzeto, Giacomo A. M.
    Abstract: Urban proximity can reduce the costs of shipping goods and speed the flow of ideas. Improvements in communication technology might erode these advantages and allow people and firms to decentralize. However, improvements in transportation and communication technology can also increase the returns to new ideas, by allowing those ideas to be used throughout the world. This paper presents a model that illustrates these two rival effects that technological progress can have on cities. We then present some evidence suggesting that the model can help us to understand why the past thirty-five years have been kind to idea-producing places, like New York and Boston, and devastating to goods-producing cities, like Cleveland and Detroit.
    Date: 2008–01
  9. By: Chia-Lin Chang; Les Oxley (University of Canterbury)
    Abstract: The paper analyses the impact of geographic innovation on Total Factor Productivity (TFP) in Taiwan. Using 242 four-digit standard industrial classification (SIC) industries in Taiwan in 2001, we compute TFP by estimating Translog production functions with K, L, E and M inputs, and measure the geographic innovative activity using both Krugman's Gini coefficients and the location Herfindahl index. We also consider the geographic innovation variable as an endogenous variable and use 2SLS to obtain a consistent, albeit inefficient, estimator. The empirical results show a significantly positive effect of geographic innovation, as well as R&D expenditure, on TFP. These results are robust for the Gini coefficients and location Herfindahl index, when industry characteristics and heteroskedasticity are controlled. Moreover, according to the endogeneity of geographic innovation, the Hausman test shows that the geographic innovation variable should be treated as endogenous, which supports the modern theory of industrial clustering about innovation spillovers within clusters.
    Keywords: Industry agglomeration; Geographic innovation; Total factor productivity; Cluster; Research and Development
    JEL: O32 O33 L60 R12
    Date: 2008–07–01
  10. By: Marco Manacorda
    Abstract: This paper uses administrative longitudinal micro data on the universe of Junior High schoolstudents in Uruguay to measure the effect of grade failure on students' subsequent schooloutcomes. Exploiting the discontinuity induced by a rule establishing automatic grade failurefor pupils missing more than 25 days, I show that grade failure leads to substantial drop-outand lower educational attainment even after 4 to 5 years since the time when failure firstoccurred. Complementary evidence based on a change in the regime of grade promotion leadsto very similar conclusions, suggesting that non-random sorting around the discontinuitypoint is unlikely to drive my results.
    Keywords: grade retention, school drop-out, regression discontinuity, sorting
    JEL: I21 I22 J20
    Date: 2008–07
  11. By: Abadie, Alberto (Harvard U); Dermisi, Sofia (Roosevelt U)
    Abstract: The attacks of September 11, 2001, and more recently the Madrid and London downtown train bombings, have raised concerns over both the safety of downtowns and the continuous efforts by terrorists to attack areas of such high density and significance. This article employs building-level data on vacancy rates to investigate the impact of an increased perception of terrorist risk after 9/11 on the office real estate market in downtown Chicago. Chicago provides the perfect laboratory to investigate the effects of an increase in the perceived level of terrorist risk in a major financial district. Unlike in New York, the 9/11 attacks did not restrict directly the available office space in downtown Chicago. Moreover, the 9/11 attacks induced a large increase in the perception of terrorist risk in the Chicago Central Business District, which includes the tallest building in the U.S. (the Sears Tower) and other landmark buildings which are potential targets of large-scale terrorist attacks. Our results show that, following the 9/11 attacks, vacancy rates experienced a much more pronounced increase in the three most distinctive Chicago landmark buildings (the Sears Tower, the Aon Center and the Hancock Center) and their vicinities than in other areas of the city of Chicago. Our results suggest that economic activity in Central Business Districts can be greatly affected by changes in the perceived level of terrorism.
    Date: 2008–03
  12. By: Desai, Mihir (Harvard U); Dharmapala, Dhammika (U of Connecticut); Singhal, Monica (Harvard U)
    Abstract: The Low Income Housing Tax Credit (LIHTC) represents a novel tax expenditure program that employs “investable” tax credits to spur production of low-income rental housing. While it has grown into the largest source of new affordable housing in the U.S. and its structure is now being replicated in other programs, the LIHTC has also drawn skepticism and calls for its repeal. This paper outlines a conceptual framework for exploring the conditions under which investable tax credits may be the most effective mechanism to deliver a production subsidy and discusses the desirability of employing investable tax credits in other policy domains. Estimates of tax expenditures under this program are provided and efficiency costs, distributional issues, and the likely effects of reforms to tax provisions such as the AMT are considered.
    Date: 2008–06
  13. By: Chiou, Lesley (Occidental College); Muehlegger, Erich (Harvard U)
    Abstract: Differences in excise tax rates across jurisdictions create incentives for consumers to cross the border and purchase in lower-tax jurisdictions. This paper introduces a discrete choice model to examine tax avoidance and state border-crossing in the market for cigarettes. We exploit a rich dataset of consumer location choices and demographics to estimate a consumer’s tradeoff between distance and price when choosing a location to maximize utility. Using the estimates from our location and demand models, we reconsider a recent public policy issue among states and simulate tax avoidance under alternative cigarette excise tax levels.
    Date: 2008
  14. By: Ofer Malamud; Cristian Pop-Eleches
    Abstract: When students are tracked into vocational and academic secondary schools, access to higher education is usually restricted to those who were selected into the academic track. Postponing such tracking may increase the relative educational attainment of disadvantaged students if they have additional time in school to catch up with their more privileged counterparts. On the other hand, if ability and expectations are fairly well set by an early age, postponing tracking during adolescence may not have much effect. This paper exploits an educational reform in Romania to examine the impact of postponing tracking on the proportion of disadvantaged students graduating from university using a regression discontinuity (RD) design. We show that, although students from poor, rural areas and with less educated parents were significantly more likely to finish an academic track and become eligible to apply for university after the reform, this did not translate into an increase in university completion. Our findings indicate that simply postponing tracking, without increasing the slots available in university, is not sufficient to improve access to higher education for disadvantaged groups.
    Keywords: tracking, higher education, access, disadvantaged students
    Date: 2008–05
  15. By: Ofer Malamud; Abigail Wozniak
    Abstract: College-educated workers are twice as likely as high school graduates to make lasting long-distance moves, but little is known about the role of college itself in determining geographic mobility. Unobservable characteristics related to selection into college might also drive the relationship between college education and geographic mobility. We explore this question using a number of methods to analyze both the 1980 Census and longitudinal sources. We conclude that the causal impact of college completion on subsequent mobility is large. We introduce new instrumental variables that allow us to identify educational attainment and veteran status separately in a sample of men whose college decisions were exogenously influenced by their draft risk during the Vietnam War. Our preferred IV estimates imply that graduation increases the probability that a man resides outside his birth state by approximately 35 percentage points, a magnitude nearly twice as large as the OLS migration differential between college and high school graduates. IV estimates of graduation’s impact on total distance moved are even larger, with IV estimates that exceed OLS considerably. We provide evidence from the National Longitudinal Survey of Youth (NLSY) 1979 that our large IV estimates are plausible and likely explained by heterogeneous treatment effects. Finally, we provide some suggestive evidence on the mechanisms driving the relationship between college completion and mobility.
    Keywords: geographic mobility, college, higher education, vietnam
    Date: 2008–03
  16. By: Ponce, Juan (Flasco); Bedi, Arjun S. (Institute of Social Studies)
    Abstract: Throughout Latin America, conditional cash transfer (CCT) programs play an important role in social policy. These programs aim to influence the accumulation of human capital, as well as reduce poverty. In terms of educational outcomes, a number of impact evaluation studies have shown that such programs have led to an increase in school enrollment, ensured regular school attendance and led to a reduction in child labor. Theoretically, such cash transfer programs may also be expected to exert a positive impact on students’ test scores, but related empirical evidence is scarce. Accordingly, this paper evaluates the impact of a cash transfer program, the Bono de Desarrollo Humano of Ecuador, on students’ cognitive achievements. The paper uses a regression discontinuity strategy to identify the impact of the program on second grade cognitive achievement. Regardless of the specification and the sample used, we find that there is no impact of the program on test scores, suggesting that attempts at building human capital, as measured by cognitive achievement, require additional and alternative interventions.
    Keywords: cash transfers, test scores, regression discontinuity
    JEL: I38 I28
    Date: 2008–08
  17. By: Cutler, David (Harvard U); Glaeser, Edward L.
    Abstract: re individuals more likely to smoke when they are surrounded by smokers? In this paper, we examine the evidence for peer effects in smoking. We address the endogeneity of peers by looking at the impact of workplace smoking bans on spousal and peer group smoking. Using these bans as an instrument, we find that individuals whose spouses smoke are 40 percent more likely to smoke themselves. We also find evidence for the existence of a social multiplier in that the impact of smoking bans and individual income becomes stronger at higher levels of aggregation. This social multiplier could explain the large time series drop in smoking among some demographic groups.
    Date: 2008–03
  18. By: Niels Bosma; Erik Stam; Veronique Schutjens
    Abstract: Do processes of firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, measured by Total Factor Productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988-2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities.
    Keywords: entrepreneurship, entry & exit, turbulence, creative destruction, regional competitiveness, total factor productivity
    JEL: L10 M13 O18 R11
    Date: 2008–08
  19. By: Jang Ping Thia
    Abstract: This paper presents an economic geography model with two differentiated sectors that exhibitweaker inter and stronger intra-industry input-output linkages. Labour is also differentiatedaccording to skills in a hierarchy of tasks they can perform. Globalisation occurs in twodistinct phases, leading to the agglomeration of an industry (manufacturing) in the first wave,which is subsequently displaced by the other industry (services) when the second wave ofglobalisation takes place. Because of agglomeration effects, the increase in relativeendowment of a factor may increase its relative wages, leading to more inequality. Withinand between nations inequality can result.
    Keywords: Agglomeration, Wage Inequality, Globalisation
    JEL: F02 F12 F16
    Date: 2008–06
  20. By: William Latham (Department of Economics,University of Delaware); Hong Yin (Department of Economics,University of Delaware)
    Abstract: We examine the return to innovation in terms of economic growth at the provincial level to assess whether or not policies that promote R&D, such as China’s Science and Technology Policy, have been productive for all of China’s regions. The return to innovation at the provincial level is estimated using a value-added Cobb-Douglas production function. The measure of the effect of innovation (patenting activity) is valued-added industrial output. The data are a balanced panel for 30 provinces for the period 1991-2004. We find that the production function including innovation fits the Chinese provincial level data well. These estimates indicate that technology plays a positive role in industrial growth at the provincial level; however, the contribution of technology is far too small, which indicates that China’s economic growth is largely driven by the factor inputs. The results support the views that the linkages between innovation activity and commercialization of new technology are weak within Chinese domestic firms which have difficulties in exploiting and adopting the new technologies. The results also indicate that the inter-regional technology spillovers are positive but relatively small and weak, compared to the European regions and the states in the US. The estimated results further confirm that the impact of industrial reforms during the period of 1994-99 on China’s technological development is negative, as there seems to be neither exogenous technical progress nor technology’s contribution to the value-added industrial output during those years.
    Keywords: China, patents, productivity, innovation, regions
    JEL: O33 R11 O47 O55
  21. By: Grodner, Andrew (East Carolina University); Kniesner, Thomas J. (Syracuse University)
    Abstract: We examine theoretically demand in a two-good economy where the demand of one good is influenced by either a spillover effect in the form of an externality from other consumers’ choices and or a conformity effect representing a need for making similar choices as others. A positive spillover effect increases the demand for the good with interactions, and a conformity effect makes the demand curve pivot around the average market demand to make demand less price sensitive. The collateral implication is that spillover in consumption increases the associated derived demand for labor and conformity in consumption makes the associated derived demand for labor less elastic. Finally, we also demonstrate how the presence of a good with social interactions affects the demand for the good without social interactions and the associated demand for the labor producing the non-interactions good.
    Keywords: spillover, social interactions, consumer demand, conformity, labor demand
    JEL: D11
    Date: 2008–08
  22. By: Deller, Steven C. (U of Wisconsin)
    Abstract: In this study I examine the role of microenterprises (firms with between one and four employees) in Wisconsin economic growth. Using a panel of Wisconsin counties from 1977 to 1997 I estimate an expanded Carlino-Mills type model of growth. Results suggest that nearly 50 percent of all businesses in Wisconsin are microenterprises and this share is relatively stable over time. Results also indicate that a higher percentage of businesses classified as microenterprises tend to be associated with counties with lower population levels, slower population growth, but higher levels of employment and income growth. Results also vary by type of industry. These results suggest that care must be taken when promoting microenterprises as a major engine of economic growth: results vary by measure of economic growth as well as type of industry.
    Date: 2007–09
  23. By: Ross Levine; Alexey Levkov; Yona Rubinstein
    Abstract: This paper assesses the impact of competition on racial discrimination. The dismantling of inter- and intrastate bank restrictions by U.S. states from the mid-1970s to the mid-1990s reduced financial market imperfections and lowered entry barriers facing nonfinancial firms. We use bank deregulation to identify an exogenous intensification of competition in the nonfinancial sector, and evaluate its impact on the racial wage gap, which is that component of the black-white wage differential unexplained by Mincerian characteristics. We find that bank deregulation reduced the racial wage gap by spurring the entry of nonfinancial firms. Consistent with theory, the impact of competition on the wage gap is particularly large in states with a comparatively high degree of racial bias, where competition-enhancing bank deregulation eliminated between 20 and 30 percent of the racial wage gap.
    JEL: D3 D43 G21 G28 J31 J7
    Date: 2008–08

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