nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2008‒11‒11
43 papers chosen by
Steve Ross
University of Connecticut

  1. Space-time patterns of urban sprawl, a 1D cellular automata and microeconomic approach By CARUSO, Geoffrey; PEETERS  , Dominique; CAVAILHES, Jean; ROUNSEVELL, Mark
  2. Agglomeration, tax competition, and fiscal equalization By Matthias Wrede
  3. Does urban sprawl increase the costs of providing local public services? Evidence from Spanish municipalities By Albert Solé-Ollé; Miriam Hortas-Rico
  4. On the impact of labor market matching on regional disparities By THARAKAN, Jo; TROPEANO, Jean-Philippe
  5. City Beautiful By Carlino, Gerald A.; Saiz, Albert
  6. Spatial Patterns of Office Employment in the New York Region By Fuerst, Franz
  7. Housing market spillovers : evidence from an estimated DSGE model By Matteo Iacoviello; Stefano Neri
  8. Industrial Agglomeration and Wage Inequality in China By Li, Yao
  9. Subprime Rescue Plans: Backdoor Bank Bailouts By Dean Baker
  10. Agglomeration and growth: the effects of commuting costs By Antonio Accetturo
  11. Transportation, freight rates, and economic geography By BEHRENS, Kristian; PICARD, Pierre M.
  12. Educational choices and the selection process before and after compulsory schooling By Sauro Mocetti
  13. Did prepayments sustain the subprime market? By Geetesh Bhardwaj; Rajdeep Sengupta
  14. The Apple Doesn't Fall Far From the Tree: Location of Start-Ups Relative to Incumbents By Oliver Falck; Michael Fritsch; Stephan Heblich
  15. Government response to home mortgage distress: lessons from the great depression By David C. Wheelock
  16. The connection between house price appreciation and property tax revenues By Byron F. Lutz
  17. Property taxes and elderly mobility By Hui Shan
  18. Are Mixed Neighborhoods Always Unstable? Two-Sided and One-Sided Tipping By David Card; Alexandre Mas; Jesse Rothstein
  19. Skills, Schools, and Credit Constraints: Evidence from Massachusetts By Joshua Goodman
  20. Low-Skilled Immigration and th Expansion of Private Schools By Davide, DOTTORI; I-Ling, SHEN
  21. The Political Economy of the U.S. Mortgage Default Crisis By Atif Mian; Amir Sufi; Francesco Trebbi
  22. The incentives of mortgage servicers: myths and realities By Larry Cordell; Karen Dynan; Andreas Lehnert; Nellie Liang; Eileen Mauskopf
  23. Is Shared Housing a Way to Reduce Homelessness? The Effect of Household Arrangements on Formerly Homeless People By Yinghua He; Brendan O'Flaherty; Robert A.Rosenheck
  24. Dynamic Proximities – Changing Relations by Creating and Bridging Distances By Max-Peter Menzel
  25. Real economy causes of the Great Deprivation of early 21st Century By Naqvi, Nadeem
  26. Green Noise or Green Value? Measuring the Price Effects of Environmental Certification in Commercial Buildings By Fuerst, Franz; McAllister, Patrick
  27. The Spatial Random Effects and the Spatial Fixed Effects Model. The Hausman Test in a Cliff and Ord Panel Model By Mutl, Jan; Pfaffermayr, Michael
  28. Capital liberalization, industrial agglomeration and wage inequality By Li, Yao
  29. Determinants of Historic and Cultural Landmark Designation: Why We Preserve What We Preserve By Krupka, Douglas J.; Noonan, Douglas S.
  30. Property taxes and elderly labor supply By Hui Shan
  31. Slippery Slope? Assessing the Economic Impact of the 2002 Winter Olympic Games in Salt Lake City, Utah By Robert Baade; Robert Baumann; Victor Matheson
  32. Long-term and Short-term Determinants of Property Prices in Hong Kong By Frank Leung; Kevin Chow; Gaofeng Han
  33. The Identification of Regional Industrial Clusters Using Qualitative Input-Output Analysis By Mirko Titze; Matthias Brachert; Alexander Kubis
  34. Absenteeism and Peer Interaction Effects: Evidence from an Italian Public Institute By De Paola, Maria
  35. Network development under a strict self-financing constraint By André De Palma; Stef Proost; Saskia Van Der Loo
  36. Urban economic (re)development after declining base industries: a comparison between Emmen (NL) and Durham, North Carolina (USA) By Gerrit van der Pol
  37. Getting Into Networks and Clusters: Evidence on the GNSS composite knowledge process in (and from) Midi-Pyrénées By Jérôme Vicente; Pierre-Alexandre Balland; Olivier Brossard
  38. Bank Lending, Housing and Spreads By Aqib Aslam; Emiliano Santoro
  39. The Determinants of Regional Migration in Great Britain: A Duration Approach By Andrews, Martyn J.; Clark, Ken; Whittaker, William
  40. Living Wage Laws: How Much Do (Can) They Matter? By Holzer, Harry J.
  41. Airline Competition in the British Isles By Alberto Gaggero; Claudio A. Piga
  42. Approximating multiple class queueing models with loss models By CHEVALIER, Philippe B.; VAN DEN SCHRIECK, Jean-Christophe
  43. The real estate risk premium: A developed/emerging country panel data analysis By D’ARGENSIO, John-John; LAURIN, Frédéric

  1. By: CARUSO, Geoffrey (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); PEETERS  , Dominique (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); CAVAILHES, Jean; ROUNSEVELL, Mark
    Abstract: We present a theoretical model of residential growth that emphasizes the path-dependent nature of urban sprawl patterns. The model is founded on the monocentric urban economic model and uses a cellular automata (CA) approach to introduce endogenous neighbourhood effects. Households are assumed to both like and dislike the density of their neighbourhood, and trade-off this density with housing space consumption and commuting costs. Discontinuous spatial patterns emerge from that trade-off, with the size of suburban clusters varying with time and distance to the centre. We use space-time diagrams inspired from 1D elementary CA to visualize changes in spatial patterns through time and space, and undertake sensitivity analyses to show how the pattern and timing of sprawl are affected by neighbourhood preferences, income level, commuting costs or by imposing a green belt.
    Keywords: urban sprawl, open space, neighbourhood externalities, cellular automata, residential dynamics.
    JEL: C61 C63 D62 R14 R21
    Date: 2008–07
  2. By: Matthias Wrede (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: This paper analyzes the impact of fiscal equalization on asymmetric tax competition when positive agglomeration externalities are present. It shows that equalization of standardized tax revenue improves the spatial allocation of capital provided that agglomeration externalities are sufficiently strong.
    Keywords: Agglomeration, tax competition, fiscal equalization
    JEL: R12 H71 H73
    Date: 2008
  3. By: Albert Solé-Ollé (IEB, Universitat de Barcelona.); Miriam Hortas-Rico (IEB, Universitat de Barcelona.)
    Abstract: This paper examines the impact of urban sprawl, a phenomenon of particular interest in Spain, which is currently experiencing this process of rapid, low-density urban expansion. Many adverse consequences are attributed to urban sprawl (e.g., traffic congestion, air pollution and social segregation), though here we are concerned primarily with the rising costs of providing local public services. Our initial aim is to develop an accurate measure of urban sprawl so that we might empirically test its impact on municipal budgets. Then, we undertake an empirical analysis using a cross-sectional data set of 2,500 Spanish municipalities for the year 2003 and a piecewise linear function to account for the potentially nonlinear relationship between sprawl and local costs. The estimations derived from the expenditure equations for both aggregate and six disaggregated spending categories indicate that low-density development patterns lead to greater provision costs of local public services.
    Keywords: Urban sprawl, local public spending.
    JEL: H1 H72 R51
    Date: 2008–11
  4. By: THARAKAN, Jo (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); TROPEANO, Jean-Philippe
    Abstract: We propose a model where imperfect matching between firms and workers on local labor markets leads to incentives for spatial agglomeration. We show that the occurrence of spatial agglomeration depends on initial size differences in terms of both number of workers and firms. Allowing for dynamics of workers' and firms' location choices, we show that the spatial outcome depends crucially on different dimensions of agents' mobility. The effect of a higher level of human capital on regional disparities depends on whether it makes workers more mobile or more specialized on the labor market.
    Keywords: economic geography, local labor market, regional disparities, human capital.
    JEL: J61 J42 R12
    Date: 2008–08
  5. By: Carlino, Gerald A. (Federal Reserve Bank of Philadelphia); Saiz, Albert (Wharton School, University of Pennsylvania)
    Abstract: The city beautiful movement, which in the early 20th Century advocated city beautification as a way to improve the living conditions and civic virtues of the urban dweller, had languished by the Great Depression. Today, new urban economic theory and policymakers are coming to see the provision of consumer leisure amenities as a way to attract population, especially the highly skilled and their employers. However, past studies have only provided indirect evidence of the importance of leisure amenities for urban development. In this paper we propose and validate the number of leisure trips to MSAs as a measure of consumer revealed preferences for local leisure-oriented amenities. Population and employment growth in the 1990s was about 2 percent higher in an MSA with twice as many leisure visits: the third most important predictor of recent population growth in standardized terms. Moreover, this variable does a good job at forecasting out-of-sample growth for the period 2000–2006. "Beautiful cities" disproportionally attracted highly-educated individuals, and experienced faster housing price appreciation, especially in supply-inelastic markets. Investment by local government in new public recreational areas within an MSA was positively associated with higher subsequent city attractiveness. In contrast to the generally declining trends in the American central city, neighborhoods that were close to "central recreational districts" have experienced economic growth, albeit at the cost of minority displacement.
    Keywords: internal migration, amenities, urban population growth
    JEL: J11 J61 R23
    Date: 2008–10
  6. By: Fuerst, Franz
    Abstract: This study analyzes the regional spatial dynamics of the New York region for a period of roughly twenty years and places the effects of the 9/11 terrorist attacks in the context of longer-term regional dynamics. The analysis reveals that office-using industries are still heavily concentrated in Manhattan despite ongoing decentralization in many of these industries over the last twenty years. Financial services tend to be highly concentrated in Manhattan whereas administrative and support services are the least concentrated of the six major office-using industry groups. Although office employment has been by and large stagnant in Manhattan for at least two decades, growth of output per worker has outpaced the CMSA as well as the national average. This productivity differential is mainly attributable to competitive advantages of office-using industries in Manhattan and not to differences in industry composition. Finally, the zip-code level analysis of the Manhattan core area yielded further evidence of the existence of significant spillover effects at the small-scale level.
    Keywords: agglomeration economies; office employment; spatial concentration measures; employment data; industry composition urban economics
    JEL: R3 R12
    Date: 2006–07
  7. By: Matteo Iacoviello (Boston College, Department of Economics); Stefano Neri (Banca d'Italia, Research Department)
    Abstract: We study sources and consequences of fluctuations in the housing market. The upward trend in real housing prices of the last 40 years can be explained by slow technological progress in the housing sector. Over the business cycle, housing demand and housing technology shocks explain one-quarter each of the volatility of housing investment and housing prices. Monetary factors explain 20 percent, but they played a bigger role in the housing cycle at the turn of the century. We show that the housing market spillovers are non-negligible, concentrated on consumption rather than business investment, and have become more important over time.
    Keywords: Housing, Wealth E¤ects, Bayesian Estimation, Two-sector Models
    JEL: E32 E44 E47 R21 R31
    Date: 2008–10
  8. By: Li, Yao
    Abstract: This paper estimates nonlinear structural wage equations derived from NEG model with data on 327 cities in China. The estimation results show that the variation of wage level across cities in China is associated with proximity to large markets. The estimated elasticity of substitution of China is smaller than those of the other countries studied in previous research. It indicates that with the same increase of sub-regional market size, China may suffer more serious regional inequality problems. My estimation shows that although increased agglomeration can increase each city’s wage level, it may also increase the wage gap between large and small cities.
    Keywords: New Economic Geography; Wage Inequality; Elasticity of Substitution
    JEL: O24 F12 R12
    Date: 2008–05
  9. By: Dean Baker
    Abstract: This report analyzes recent proposals suggesting that the government buy up or guarantee bad mortgage debt in an attempt to slow the increasing number of foreclosures the nation has seen in the wake of the housing market's meltdown. The study, which focuses on the plan put forth by the Office of Thrift Supervision, shows that banks and mortgage holders end up being the true beneficiaries of such plans at the expense of taxpayers and with few gains for the majority of homeowners currently facing foreclosure.
    Keywords: foreclosure, mortgage, subprime
    JEL: G G21 G28 G38
    Date: 2008–03
  10. By: Antonio Accetturo (Bank of Italy, Regional Economic Research Staff, Milan Branch)
    Abstract: We present a model of industrial location and endogenous growth with congestion costs. According to the interplay between knowledge spillovers and commuting costs, we are able to obtain both a Krugman-type and a bell-shaped agglomeration outcome. In the first case, the economy experiences a permanent income inequality in the steady state and income divergence in the transitional dynamics. In the second case, we observe an enlargement of the industrial core of the economy with a strong catching up by the periphery. Welfare analysis shows that congestion create (in the bell-shaped agglomeration case) a negative welfare effect on peripheral unskilled workers and renders the agglomerated equilibrium Pareto inferior to dispersion.
    Keywords: Congestion, Endogenous Growth, Migration
    JEL: R11 O11
    Date: 2008–09
  11. By: BEHRENS, Kristian; PICARD, Pierre M. (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: We investigate the role of the transport sector in structuring the location of economic activity within two-region economic geography models of the footloose capital and core-periphery types. In our setting, competitive carriers offer transport services for shipping manufactured goods across regions and freight rates are determined endogenously to clear transport markets. Each carrier commits to the maximum capacity for a round-trip and thus faces a simple logistic problem: there are costs associated with 'returning empty', and those costs increase the freight rates charged to manufacturing firms. Since demand for transport services depends on the spatial distribution of economic activity, agglomeration in one region raises freight rates to serve foreign markets, thus generating an additional dispersion force. We show that a more equal equilibrium distribution of firms prevails when freight rates are endogenously determined than when they are exogenous and that multiple equilibria (including partial agglomeration) usually coexist.
    Keywords: transport sector, freight rates, economic geography, trade.
    JEL: F12 R12
    Date: 2008–07
  12. By: Sauro Mocetti (Bank of Italy, Regional Economic Research Staff, Bologna Branch)
    Abstract: The aim of this paper is to analyze the selection process at work before and after compulsory schooling by assessing the determinants of school failures, dropouts and upper secondary school decisions of young Italians. The dataset is built combining individual data by the Labor Force Survey and aggregate data on local labor markets and school supply by the Italian National Statistic Institute and the Minister of Public Education, respectively. Our results show that school failure (i.e., repetition of a year) is highly correlated with the family background, and it strongly affects later choices. Early school leaving and the upper secondary school choice are mainly a reflection of the parents’ socioeconomic status. The effectiveness of the educational system when narrowing the failure risk and the scholastic outflow relies on the widespread adoption of full-time attendance in compulsory school, the quality of the school infrastructures and the fewer teachers with temporary contracts.
    Keywords: School failures, early dropout, school choice, social mobility, Italian education system
    JEL: I20 C35
    Date: 2008–09
  13. By: Geetesh Bhardwaj; Rajdeep Sengupta
    Abstract: This paper demonstrates that the reason for widespread default of mortgages in the subprime market was a sudden reversal in the house price appreciation of the early 2000's. Using loan-level data on subprime mortgages, we observe that the majority of subprime loans were hybrid adjustable rate mortgages, designed to impose substantial financial burden on reset to the fully indexed rate. In a regime of rising house prices, a financially distressed borrower could avoid default by prepaying the loan and our results indicate that subprime mortgages originated between 1998 and 2005 had extremely high prepayment rates. However, a sudden reversal in house price appreciation increased default in this market because it made this prepayment exit option cost-prohibitive.
    Keywords: Subprime mortgage
    Date: 2008
  14. By: Oliver Falck (Ifo Institute for Economic Research); Michael Fritsch (University of Jena, School of Economics and Business Administration, Max Planck Institute of Economics, and German Institute for Economic Research (DIW)); Stephan Heblich (Max Planck Institute of Economics, Entrepreneurship, Growth, and Public Policy Group)
    Abstract: New firm location decisions, relative to incumbents may be based on a choice between two types of advantages: natural advantages or those that arise from social embeddedness, the latter of which may particularly include knowledge spillovers. We analyze the relative importance of geographically bounded location factors based on data from 103 manufacturing industries across 327 West German and 111 East German districts. Our micro-geographic analysis reveals that the two parts of the country vary in their pattern of new firm location. In East Germany, only 5 percent of the industries reveal start-up localization patterns beyond what natural advantages would suggest compared to 40 percent in West Germany.
    Keywords: Entrepreneurship, Location Decision, Natural Advantages, Local Knowledge Spillovers
    JEL: L26 R11 O18
    Date: 2008–11–03
  15. By: David C. Wheelock
    Abstract: The Great Depression was the worst macroeconomic collapse in U.S. history. Sharp declines in household income and real estate values resulted in soaring mortgage delinquency rates. According to one estimate, as of January 1, 1934, fully one-half of U.S. home mortgages were delinquent and, on average, some 1000 home loans were foreclosed every business day. This paper documents the increase in residential mortgage distress during the Depression, and discusses actions taken by state governments and the federal government to reduce mortgage foreclosures and restore the functioning of the mortgage market. Many states imposed moratoria on both farm and nonfarm residential mortgage foreclosures. Although moratoria reduced farm foreclosure rates in the short run, they appear to have also reduced the supply of loans and made credit more expensive for subsequent borrowers. The federal government took a number of steps to relieve residential mortgage distress and to promote the recovery and growth of the national mortgage market. The Home Owners Loan Corporation (HOLC) was created in 1933 to purchase and refinance delinquent home loans as long-term, amortizing mortgages. Between 1933 and 1936, the HOLC acquired and refinanced one million delinquent loans totaling $3.1 billion. The HOLC refinanced loans on some 10 percent of all nonfarm, owner-occupied dwellings in the United States, and about 20 percent of those with an outstanding mortgage. The Great Depression experience suggests how foreclosures might be reduced during the present crisis.
    Keywords: Home Mortgage Disclosure Act ; Mortgage loans ; Depressions
    Date: 2008
  16. By: Byron F. Lutz
    Abstract: This paper explores two aspects of the connection between property tax revenues and house prices. First, I estimate the elasticity of property tax revenues with respect to house prices. This elasticity does not necessarily equal one as governments may adjust effective tax rates to offset changes in property values. Second, I examine the timing of the relationship. Institutional features of the property tax make it unlikely that changes in house prices will immediately influence tax revenues. The results suggest that the elasticity eventually equals 0.4 and that it takes three years for house price changes to impact tax revenues.
    Date: 2008
  17. By: Hui Shan
    Abstract: The recent housing market boom in the U.S. has caused sharp increases in residential property taxes. Housing-rich but income-poor elderly homeowners often complain about rising tax burdens, and anecdotal evidence suggests that some move to reduce their tax burden. There has been little systematic analysis, however, of the link between property tax levels and the mobility rate of elderly homeowners. This paper investigates this link using household-level panel data from the Health and Retirement Study (HRS) and a newly collected dataset on state-provided property tax relief programs. These relief programs generate variation in effective property tax burdens that is not due solely to arguably endogenous local community choices about taxes and expenditure programs. The findings provide evidence suggesting that higher property taxes raise mobility among elderly homeowners. The point estimates from instrumental variable estimation using relief programs to generate instruments suggest that a $100 increase in annual property taxes is associated with a 0.76 percentage point increase in the two-year mobility rate for homeowners over the age of 50. This is an eight percent increase from the baseline two-year mobility rate of nine percent. These results are robust to alternative specifications.
    Date: 2008
  18. By: David Card; Alexandre Mas; Jesse Rothstein
    Abstract: A great deal of urban policy depends on the possibility of creating stable, economically and racially mixed neighborhoods. Many social interaction models – including the seminal Schelling (1971) model – have the feature that the only stable equilibria are fully segregated. These models suggest that if home-buyers have preferences over their neighborhoods' racial composition, a neighborhood with mixed racial composition is inherently unstable, in the sense that a small change in the composition sets off a dynamic process that converges to either 0% or 100% minority share. Card, Mas, and Rothstein (2008) outline an alternative "one-sided" tipping model in which neighborhoods with a minority share below a critical threshold are potentially stable, but those that exceed the threshold rapidly shift to 100% minority composition. In this paper we examine the racial dynamics of Census tracts in major metropolitan areas over the period from 1970 to 2000, focusing on the question of whether tipping is "two-sided" or "one-sided". The evidence suggests that tipping behavior is one-sided, and that neighborhoods with minority shares below the tipping point attract both white and minority residents.
    JEL: H0 R2 R31
    Date: 2008–11
  19. By: Joshua Goodman (Columbia University - Department of Economics)
    Abstract: Low college enrollment rates among low income students may stem from credit constraints, low academic skill, low quality schools, or some combination of these. Recent Massachusetts data allow the first use of school district fixed effects in the analysis of credit constraints, leading to four primary findings. First, Massachusetts' low income students have lower intended college enrollment rates than higher income students but also have dramatically lower skills and attend lower quality school districts. Second, inclusion of skill controls greatly reduces but does not eliminate the intended enrollment gap, with low income students seven percentage points less likely to intend enrollment than similarly skilled higher income students. Third, in districts where higher income students are plausibly unconstrained, inclusion of school district fixed effects does little to reduce intended enrollment gaps, with low income students nine percentage points less likely to intend enrollment than similarly skilled higher income students from the same school district. Fourth, low income students in the middle and upper parts of the skill distribution appear the most constrained, particularly with respect to four-year public colleges. State governments could use the methods employed here to identify credit constrained student populations in order to target financial aid more efficiently.
    Date: 2008
  20. By: Davide, DOTTORI; I-Ling, SHEN
    Abstract: This paper studies the impact of low-skilled immigration on the host countryÕs education system, which is characterized by sources of school funding, expenditres per pupil, and types of parents who are more likely to send children to publicly (privately) funded schools. When the size of low-skilled immigrants is large, it is found that wealthier natives are likely to opt out from public into private schools. Four main effects of immigration are taken into account : (1) greater congestion in public school; (2) lower average tax base for education funding; (3) reduced low-skilled wage and so more low-skilled natives to privately invest in their childrenÕs education and hence weakens their support to finance public school. The theoretical predictions are not at odds with cross-country stylized facts revealed in both micro and macro data. Moreover, with endogenous fertility, the opting-out decision taken by some native parents results in the empirically observed fertility differential between natives and immigrants
    Keywords: Voting, Taxes and Subsidies, Education, Fertility, Migration
    JEL: H42 H52 I21 D72 O15
    Date: 2008–07–09
  21. By: Atif Mian; Amir Sufi; Francesco Trebbi
    Abstract: We examine the determinants of congressional voting behavior on two of the most significant pieces of federal legislation in U.S. economic history: the American Housing Rescue and Foreclosure Prevention Act of 2008 and the Emergency Economic Stabilization Act of 2008. We find evidence that constituent interests and special interests influence voting patterns during the crisis. Representatives from districts experiencing an increase in mortgage default rates are significantly more likely to vote in favor of the AHRFPA. They are precise in responding only to mortgage related constituent defaults, and are significantly more sensitive to defaults of their own-party constituents. Increased campaign contributions from the financial services industry is associated with a higher likelihood of voting in favor of the EESA, a bill which transfers wealth from tax payers to the financial services industry. We also examine the trade-off between politician ideology and constituent and special interests, and find that conservative politicians are less responsive to constituent and special interest pressure. This latter finding suggests that politicians, through ideology, can commit against intervention even during severe crises.
    JEL: D72 G21 L51
    Date: 2008–11
  22. By: Larry Cordell; Karen Dynan; Andreas Lehnert; Nellie Liang; Eileen Mauskopf
    Abstract: As foreclosure initiations have soared over the past couple of years, many have questioned whether mortgage servicers have the right incentives to work out troubled subprime mortgages so that borrowers can avoid foreclosure and remain in their homes. Some critics claim that because servicers, unlike investors, do not bear the losses associated with foreclosure, they have little incentive to modify troubled loans by reducing interest rates or principal, or by extending the term. Our analysis suggests that while servicers have substantially improved borrower outreach and increased loss mitigation efforts, some foreclosures still occur where both borrower and investor would benefit if such an outcome were avoided. We discuss servicers’ incentives and the obstacles to working out delinquent mortgages. We find that loss mitigation is costly for servicers, in large part because servicers currently lack adequate staff and technology; unfortunately, servicers have few financial incentives to expand capacity. Two additional factors appear to be damping workouts of nonprime loans, the group that has seen the largest increase in delinquencies. First, affordable solutions are more difficult to achieve for borrowers with these loans than for those with prime mortgages. Second, these loans are generally funded by private-label mortgage backed securities, for which investors provide little or no guidance to servicers about what modifications are appropriate. More generally, investors are wary that modifications might turn out to be unsuccessful, thus delaying and increasing ultimate losses. Given the significant deadweight losses incorporated in recent quarters’ loss rates of 50 percent or more, we present options for further improving servicer performance. We discuss supporting further industry efforts to expand borrower outreach and establish servicing guidelines, educating investors, paying servicers fees for appropriate loan workouts, and improving measures of servicer performance.
    Keywords: Mortgage loans ; Subprime mortgage
    Date: 2008
  23. By: Yinghua He (Columbia University - Department of Economics); Brendan O'Flaherty (Columbia University - Department of Economics); Robert A.Rosenheck (Scientific consultants)
    Abstract: Most single adults share housing with other adults, and living alone is considerably more expensive than living with someone else. Yet policies that discourage shared housing for formerly homeless people or people at risk of becoming homeless are common, and those that discourage it are rare. This would be understandable if such housing adversely affected its users in some way. We ask whether shared housing produces adverse effects. Our provisional answer is no. Indeed, shared housing is associated with reduced psychotic symptomology and it appears that this relationship is causal over some time frames, although the latter result is not robust. We use data from ACCESS, a 5-year, 18-site demonstration project with over 6,000 formerly homeless individuals as participants.
    Date: 2008
  24. By: Max-Peter Menzel
    Abstract: The analysis of qualitative regional change requires an approach that is able to cope with these changes from a relational perspective. While the proximity concept explains the spatiality of relations at a particular point in time and describes them in terms of proximity and distance, a dynamic proximity concept must explain how these distances are both bridged and created. Three different dynamics are elaborated: a cognitive dynamic that changes through learning, a network dynamic that changes when connections are made and a spatial dynamic that changes whenever actors move in space. Proximity dimensions are constructed using these three dynamics. It is argued that bridging distances is the crucial process in changing relations and that bridging distance in one dimension requires proximities in other dimensions. Implications for regional development are derived.
    Keywords: proximity, network, cognitive distance, regional change
    Date: 2008–10
  25. By: Naqvi, Nadeem
    Abstract: The American economy has undergone a dramatic structural change in the first decade of the 21st Century. The real-economy causes of this transformation, and their expression via the real estate market and its financial derivatives’ market, and their final manifestation in world financial markets, is explained using traditional economic theory. A three-sector Walrasian general equilibrium model, and a non-Walrasian temporary equilibrium model with fixed prices and quantity constraints, are both utilized to explain the real-economy causes of the observed stylized facts. Some remedies that will likely work, and ones that will not, are also identified. (95 words)
    Keywords: financial crisis; credit crunch; mortgage backed securities; fiscal policy; monetary policy; the U.S. economy; outsourcing; international capital mobility
    JEL: D5 D3 F2 E5 F1 E3
    Date: 2008–11–04
  26. By: Fuerst, Franz; McAllister, Patrick
    Abstract: Evaluating the environmental performance of a building is rapidly gaining importance as a metric in real estate investments. Since interpretation of the technical measurements is difficult and requires high expertise, investors tend to rely on markers as provided by environmental certification standards instead of evaluating environmental performance directly. It is argued that there are likely to be three main drivers of price differences between certified and non-certified buildings. Drawing upon the CoStar database of US commercial real estate assets, hedonic regression analysis is used to measure the effect of certification on both rent and price. We first estimate the rental regression for a sample of 110 LEED and 433 Energy Star as well as several thousand benchmark buildings to compare the sample to. The results suggest that certified buildings have a rental premium. Furthermore, based on a sample of transaction prices for 292 Energy Star and 30 LEED-certified buildings, we find a price premium of 10% and 31% respectively.
    Keywords: Green buildings; LEED; Energy Star certification; commercial real estate; appraisal; partial equilibrium; price premium; innovation diffusion
    JEL: C5 C31 M2 O4 R33 Q2
    Date: 2008–04
  27. By: Mutl, Jan (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria); Pfaffermayr, Michael (Department of Economics, University of Innsbruck, Innsbruck, Austria and Austrian Institute of Economic Research, Vienna, Austria and CESIFO, Germany)
    Abstract: This paper studies the spatial random effects and spatial fixed effects model. The model includes a Cliff and Ord type spatial lag of the dependent variable as well as a spatially lagged one-way error component structure, accounting for both heterogeneity and spatial correlation across units. We discuss instrumental variable estimation under both the fixed and the random effects specification and propose a spatial Hausman test which compares these two models accounting for spatial autocorrelation in the disturbances. We derive the large sample properties of our estimation procedures and show that the test statistic is asymptotically chi-square distributed. A small Monte Carlo study demonstrates that this test works well even in small panels.
    Keywords: Spatial econometrics, Panel data, Random effects estimator, Within estimator, Hausman test
    JEL: C21 C23
    Date: 2008–10
  28. By: Li, Yao
    Abstract: This paper sets up a new economic geography model with diminishing marginal returns and examines the effect of capital liberalization on industrial agglomeration and wage inequality. The simulation results indicate that for the country with strict capital controls, capital liberalization can help reduce wage difference between countries in both nominal and real terms. It is also shown that when both comparative advantage and agglomeration are in effect, low trading costs does not necessarily cause the catastrophic agglomeration in the country with the larger market as most other NEG models predict.
    Keywords: New Economic Geography; Capital Liberalization; Trade Costs
    JEL: O24 F12 R12
    Date: 2007–12
  29. By: Krupka, Douglas J. (IZA); Noonan, Douglas S. (Georgia Tech)
    Abstract: There is much interest among cultural economists in assessing the effects of heritage preservation policies. There has been less interest in modeling the policy choices made in historic and cultural landmark preservation. This paper builds an economic model of a landmark designation that highlights the tensions between the interests of owners of cultural amenities and the interests of the neighboring community. We perform empirical tests by estimating a discrete choice model for landmark preservation using data from Chicago, combining the Chicago Historical Resources Survey of over 17,000 historic structures with property sales, Census, and other geographic data. The data allow us to explain why some properties were designated landmarks (or landmark districts) and others were not. The results identify the influence of property characteristics, local socio-economic factors, and measures of historic and cultural quality. The results emphasize the political economy of implementing preservation policies.
    Keywords: heritage preservation policy, landmark designation
    JEL: Z1 R52 D78
    Date: 2008–10
  30. By: Hui Shan
    Abstract: The recent housing market boom in the U.S. has caused sharp increases in residential property taxes. Anecdotal evidence suggests that rising property taxes have induced elderly homeowners to increase their labor supply. This paper uses 1992-2004 panel data from the Health and Retirement Study (HRS) as well as a newly collected dataset on state-provided property tax relief programs to investigate the effect of property taxes on the labor supply of elderly homeowners. It is the first rigorous study on the link between property taxes and elderly labor supply. I examine both the extensive margin - whether elderly homeowners delay retirement or reenter the labor market in the face of rising property taxes, and the intensive margin - whether elderly homeowners work longer hours when property taxes increase. A simulated IV approach is used to address the potential endogeneity problem associated with property taxes. I find little evidence that property taxes have a significant impact on elderly homeowners' decisions to retire, to re-enter the labor force, or to increase working hours.
    Date: 2008
  31. By: Robert Baade (Department of Economics and Business, Lake Forest College); Robert Baumann (Department of Economics, College of the Holy Cross); Victor Matheson (Department of Economics, College of the Holy Cross)
    Abstract: This paper provides an empirical examination of the 2002 Winter Olympic Games in Salt Lake City, Utah. Our analysis of taxable sales in the counties in which Olympic events took place finds that some sectors such as hotels and restaurants prospered while other retailers such as general merchandisers and department stores suffered. Overall the gains in the hospitality industry are lower than the losses experienced by other sectors in the economy. Given the experience of Utah, potential Olympic hosts should exercise caution before proceeding down the slippery slope of bidding for this event.
    Keywords: Olympics, impact analysis, mega-event, tourism, sports
    JEL: O18 R53 L83
    Date: 2008–11
  32. By: Frank Leung (Research Department, Hong Kong Monetary Authority); Kevin Chow (Research Department, Hong Kong Monetary Authority); Gaofeng Han (Research Department, Hong Kong Monetary Authority)
    Abstract: Property prices in Hong Kong increased markedly in late 2007 and early 2008, raising concerns about the risk of overheating in the property market. In this paper, we use co-integration analysis to analyze the short- and long-run determinants of property prices in Hong Kong. We find that the long-run determinants include GDP per capita, real interest rate, land supply, and the residential investment deflator, which reflects the impact of inflation and real construction cost. In the short-run, property price is also affected by equity price. Based on this framework, we assess the market conditions in early 2008. We also do graphical and clustering analyses of six property market indicators to supplement the co-integration analysis.
    Keywords: Property price, overheating, co-integration, clustering analysis
    JEL: R31
    Date: 2008–10
  33. By: Mirko Titze; Matthias Brachert; Alexander Kubis
    Abstract: The ‘cluster theory’ has become one of the main concepts promoting regional competitiveness, innovation, and growth. As most studies focus on measures of concentration of one industrial branch in order to identify regional clusters, the appropriate analysis of specific vertical relations within a value-adding chain is developing in this discussion. This paper tries to identify interrelated sectors via national input-output tables with the help of Minimal Flow Analysis by Schnabl (1994). The regionalization of these national industry templates is carried out with the allocation of branch-specific production values on regional employment. As a result, the paper shows concentrations of vertical clusters in only 27 of 439 German NUTS-3 regions.
    Date: 2008–11
  34. By: De Paola, Maria
    Abstract: Using microdata on a sample of about 350 workers, employed at an Italian public institute, we explain individual absence rates both considering variables that may be related to health conditions and to variables that may suggest shirking behaviour. Among these variables we especially focus our attention on the influence produced by the behaviour of randomly assigned peers. To handle reflection problems we use the proportion of females in the peer group as instrument of peer absence behaviour. From Two-Stage least square estimates it emerges that social and group interactions play an important role in shaping individual absence behaviour.
    Keywords: Absenteeism; Shirking; Peer Effects
    JEL: J22 M50
    Date: 2008–10–07
  35. By: André De Palma; Stef Proost; Saskia Van Der Loo
    Abstract: This paper offers a stylized model in which an agency is in charge of investing in road capacity and maintain it but cannot use the capital market so that the only sources of funds are the toll revenues. We call this the strict self-financing constraint in opposition to the traditional self financing constraint where implicitly 100% of the investment needs can be financed by loans. Two stylised problems are analysed: the one link problem and the problem of two parallel links with one link untolled. The numerical illustrations show the cost of the strict self-financing constraint as a function of the importance of the initial infrastructure stock, the rate of growth of demand, the price elasticity of demand and the flexibility in the pricing instruments.
    Keywords: Cost-benefit analysis, road tolling, self-financing, infrastructure investments, congestion, bottleneck model.
    JEL: R42 L91 R40
    Date: 2008–10
  36. By: Gerrit van der Pol
    Date: 2008–10–07
  37. By: Jérôme Vicente; Pierre-Alexandre Balland; Olivier Brossard
    Abstract: This paper aims to contribute to the empirical identification of clusters by proposing methodological issues based on network analysis. We start with the detection of a composite knowledge process rather than a territorial one stricto sensu. Such a consideration allows us to avoid the overestimation of the role played by geographical proximity between agents, and grasp its ambivalence in knowledge relations. Networks and clusters correspond to the complex aggregation process of bi or n-lateral relations in which agents can play heterogeneous structural roles. Their empirical reconstitution requires thus to gather located relational data, whereas their structural properties analysis requires to compute a set of indexes developed in the field of the social network analysis. Our theoretical considerations are tested in the technological field of GNSS (Global Satellite Navigation Systems). We propose a sample of knowledge relations based on collaborative R&D projects and discuss how this sample is shaped and why we can assume its representativeness. The network we obtain allows us to show how the composite knowledge process gives rise to a structure with a peculiar combination of local and distant relations. Descriptive statistics and structural properties show the influence or the centrality of certain agents in the aggregate structure, and permit to discuss the complementarities between their heterogeneous knowledge profiles. Quantitative results are completed and confirmed by an interpretative discussion based on a run of semi-structured interviews. Concluding remarks provide theoretical feedbacks.
    Keywords: Knowledge, Networks, Economic Geography, Cluster, GNSS
    JEL: O32 R12
    Date: 2008–10
  38. By: Aqib Aslam (University of Cambridge); Emiliano Santoro (Department of Economics, University of Copenhagen)
    Abstract: The framework presented in this paper takes its cue from recent financial events and attempts to develop a tractable framework for policy analysis of macro-linkages, in particular a first attempt at the integration of an independent profit-maximising banking sector that lends to and borrows from agents in the economy, and through which changes in the monetary policy rate by the central bank are transmitted. The inter-linkages between housing and the role of the banking sector in the transmission of monetary policy is emphasized. Two competing effects are highlighted: (i) a financial accelerator channel, due to the presence of collateralized borrowers, and (ii) a banking attenuator effect, which crucially arises from the spread in interest rates caused by the introduction of monopolistically competitive financial intermediaries. We show how the classical amplification mechanism explored in models of private borrowing between collaterally-constrained 'impatient' households and unconstrained 'patient' households, such as those put forward by Kiyotaki and Moore (1997) and Iacoviello (2005), is counteracted by the banking attenuator effect, given an endogenous steady state spread between loan and savings rates. Attenuation occurs therefore even under the assumption of flexible interest rates. This effect is further magnified when sluggishness in the interest rate-setting mechanism is introduced.
    Keywords: bank lending; housing; liquidity; credit; staggered interest rate-setting; collateral constraints
    JEL: E32 E43 E44 E51 E52 E58
    Date: 2008–05
  39. By: Andrews, Martyn J. (University of Manchester); Clark, Ken (University of Manchester); Whittaker, William (University of Manchester)
    Abstract: Using data from the first fourteen waves of the British Household Panel Survey, we estimate a discrete duration model of interregional migration in Great Britain. By exploiting retrospective information on residency we control for late entry as well as unobserved heterogeneity. We find considerable duration dependence in region of residence in the raw data, most but not all of which disappears when controlling for observable and unobservable differences between individuals. Older workers are less likely to switch region while the better educated are more mobile. There are also some differences between males and females in their likelihood to migrate.
    Keywords: regional labour markets, panel data, hazard, duration, migration
    JEL: C14 C23 C41 J24 J61 R23
    Date: 2008–10
  40. By: Holzer, Harry J. (Georgetown University)
    Abstract: In this paper I review what we have learned about living wage laws and their impacts on the wages, employment and poverty rates of low-wage workers. I review the characteristics of these laws and where they have been implemented to date, and what economic theory tells us about their likely effects in more and less competitive labor markets. I then review two bodies of empirical evidence: 1) Studies across cities or metropolitan areas that have and have not implemented these laws, using data from the Current Population Survey pooled over many years; and 2) Studies within particular cities, based on comparisons of covered and uncovered workers before and after the laws are passed. I conclude that living wage laws have modestly raised wage levels of low wage workers and have reduced their employment at covered firms, but that the magnitudes of both effects are likely quite small, given how few workers are usually covered by these ordinances.
    Keywords: living wages
    JEL: J38 J88
    Date: 2008–10
  41. By: Alberto Gaggero (Department of Economics, University of Essex.); Claudio A. Piga (Dept of Economics, Loughborough University)
    Abstract: We study the relationship between pricing and market structure on the routes connecting the UK and the Republic of Ireland. Because in 2007 the European Commission prohibited the takeover of Aer Lingus by Ryanair, the analysis focuses on their pricing strategies in particular. We use an original dataset of fares posted on-line, which allows to control for the fares' intertemporal pattern for each specific flight and each carrier's specific yield management system. Our evidence supports the European Commission's view that the elimination of a competitor in the Irish airline market is likely to have harmful consequences for consumers.
    Keywords: merger policy; consumers; anti-trust.
    JEL: L11 D61
    Date: 2008–10
  42. By: CHEVALIER, Philippe B. (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); VAN DEN SCHRIECK, Jean-Christophe (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: Multiple class queueing models arise in situations where some flexibility is sought through pooling of demands for different services. Earlier research has shown that most of the benefits of flexibility can be obtained with only a small proportion of cross-trained operators. Predicting the performance of a system with different types of demands and operator pools with different skills is very difficult. We present an approximation method that is based on equivalent loss systems. We successively develop approximations for the waiting probability, The average waiting time and the service level. Our approximations are validated using a series of simulations. Along the way we present some interesting insights into some similarities between queueing systems and equivalent loss systems that have to our knowledge never been reported in the literature.
    Date: 2008–03
  43. By: D’ARGENSIO, John-John (CADIM, Caisse de depot et placement du Québec); LAURIN, Frédéric (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: The objective of this paper is to identify the determinants of office capitalization rates for a panel of 52 countries (developed and emerging countries) between 2000 and 2006. Our assumption, based on a Capital Asset Pricing Model, is that the capitalization rate should be at least proportional to the country’s risk perception, as measured by the risk premium on the 10-year government bond yield. Because of the endogeneity of the latter variable, our empirical methodology requires that we estimate first a model explaining the 10-year bond yield. It will be the occasion to discuss the determinants of the risk premium on the bond market. Using a SURE random effect Hausman-Taylor estimator (Hausman & Taylor, 1981), we also take into account the possible correlation between the country risk characteristics on the bond markets and those that determine the real estate market. Our results show that government bond yield is the main determinant of the capitalization rate. We estimate that a 1 percentage point increase in the government bond yield will raise the capitalization rate by about 0.19 percentage point. Real estate variables play also a role, but to a lesser extent. Turning to determinants of the 10-year bond yield, macroeconomic fundamentals are significant determinants of the country risk premium, especially the capacity to honor short-term financial engagements. In addition, the country’s risk history has also very important effect on the investors’ current risk perception.
    JEL: R33 G12 C33 G15
    Date: 2008–01

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.