nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2008‒11‒25
twenty-six papers chosen by
Steve Ross
University of Connecticut

  1. If Alonso was Right: Residual Land Price, Accessibility and Urban Attraction By Ahlfeldt, Gabriel M.
  2. Space-time patterns of urban sprawl, a 1D cellular automata and microeconomic approach By CARUSO, Geoffrey; PEETERS  , Dominique; CAVAILHES, Jean; ROUNSEVELL, Mark
  3. Hedonic estimates of agricultural landscape values in suburban areas By Queslati, W.; Salanie, J.; Delaitre, C.; Beaujouan, V.
  4. New Housing Supply and the Dilution of Social Capital By Hilber, Christian A. L.
  5. On the impact of labor market matching on regional disparities By THARAKAN, Jo; TROPEANO, Jean-Philippe
  6. A Treatise on the Geographical Scale of Agglomeration Externalities and the Modifiable Areal Unit Problem By Burger, M.J.; Oort, F.G. van; Knaap, G.A. van der
  7. Externalities Imposed on Residential Properties in Highly Urbanized Areas By Cotteleer, G.; Peerlings, J.H.M.
  9. Constrained School Choice: An Experimental Study By Caterina Calsamiglia; Guillaume Haeringer; Flip Klijn
  10. Agglomeration Externalities and Technical Efficiency in Pig Production By Larue, S.; Latruffe, L.
  11. Multilevel modeling of educational longitudinal data with crossed random effects By Minjeong Jeon; Sophia Rabe-Hesketh
  12. Car Ownership and the Labor Market of Ethnic Minorities By Gautier, Pieter; Zenou, Yves
  13. Central exit examinations increase performance... but take the fun out of mathematics By Kerstin Schneider; Hendrik Jürges
  14. A network of business relations to model counterparty risk By Diana Barro; Antonella Basso
  15. Consumption and Savings of First Time House Owners: How Do They Deal with Adverse Income Shocks? By João Ejarque; Søren Leth-Petersen
  16. Pitfalls of location choice analysis : the finished goods producer versus the intermediate goods producer By Hayakawa, kazunobu; Matsuura, Toshiyuki
  17. "Agglomeration Economies within IT-Producing and IT-Consuming Industries in U.S. Regions" By Simon Condliffe; William Latham; Christian Le Bas; Frédéric Miribel
  18. Urban and Peri-urban Agriculture in Kyiv (Ukraine): "Crisis Induced Strategy" versus Recreational Resource By Komirenko, Z.; Hoermann, D.M.
  19. Does Broader-Based Local Government affect Expenditure on Public Long-Term Care Insurance? The Case of Japan By Haruaki Hirota; Hideo Yunoue
  20. Intergovernmental grant rules, the "golden rule" of public finance and local expenditures By Paulo Trigo; João Andrade e Silva
  21. Dynamic Location Games By Simon Loertscher; Gerd Muehlheusser
  22. Do Social Networks Solve Information Problems for Peer-to-Peer Lending? Evidence from By Seth Freedman; Ginger Zhe Jin;
  23. Network Effects in a Human Capital Based Economic Growth Model By Teresa V. Martins; Tanya Araújo; Maria A. Santos; Miguel St Aubyn
  24. MODEL TREE: AN APPLICATION IN REAL ESTATE APPRAISAL By Acciani, Claudio; Fucilli, Vincenzo; Sardaro, Ruggiero
  25. Spatial Dynamic Panel Model and System GMM: A Monte Carlo Investigation By Kukenova, Madina; Monteiro, Jose-Antonio
  26. A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance By Casey B. Mulligan

  1. By: Ahlfeldt, Gabriel M.
    Abstract: This study investigates whether accessibility shapes the attractiveness of residential land as predicted by theory. A spatial hedonic analysis is conducted for the metropolitan area of Berlin, Germany, using a large set of georeferenced property transactions and micro-level data. We find that the nuclei of residential land price and employment density gradients are separated by approx. 10 km, which essentially contradicts theoretical implications. Also, environmental externalities arising from the residential composition or the building structure and density in the neighborhood are more important determinants than access to the city center, which, if at all, impacts negatively on residential land prices. Moreover, a new gravity-based accessibility indicator is employed that incorporates the effective distribution of employment as well as the rapid transit network architecture in order to disentangle the effects of proximity to employment opportunities from a more general urban attraction effect. After controlling for accessibility, we find a negative effect of urban attraction, respectively an effect of urban repulsion, indicating a relatively higher attractiveness of peripheral locations. This effect is partially counterbalanced by the benefits arising from access to employment opportunities that are, although relatively dispersed, more concentrated within downtown areas. In the tension between both forces, the land price gradient tends to be, if at all significant, positive. After all, we conclude that if transport costs are very low, commuting costs lose their role as the most striking determinant of land price. These results are robust to spatial dependency.
    Keywords: Accessibility; gradient inversion; land price; urban attraction; Berlin
    JEL: R42 R52 R23
    Date: 2008–11
  2. 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
  3. By: Queslati, W.; Salanie, J.; Delaitre, C.; Beaujouan, V.
    Abstract: This paper analyses the relationship between housing prices and suburban agriculture zones endowments using the hedonic price methods. We use spatially referenced housing and land-use date to capture the effect of rural amenities around the house location in the area of Angers (France). Results indicate that put higher value on diversified landscapes rather than on unified ones. The proximity to vegetables, grasslands and vineyards do not have a significant impact on house prices while the proximity to forests has a positive impact. This impact differs following the shape of the forest.
    Keywords: rural amenities, geographic information systems, hedonic price, landscape values, Land Economics/Use,
    Date: 2008
  4. By: Hilber, Christian A. L.
    Abstract: This paper examines the role of local housing supply conditions for social capital investment. Using an instrumental variables approach and data from the Social Capital Community Benchmark Survey, it is documented that the positive link between homeownership and individual social capital investment is largely confined to more built-up neighborhoods (with more inelastic supply of new housing). The empirical findings provide support for the proposition that in these localities house price capitalization provides additional incentives for homeowners to invest in social capital. The findings are also largely consistent with the proposition that built-up neighborhoods provide protection from inflows of newcomers that could upset a mutually beneficial equilibrium involving reciprocal cooperation. However, the results do not appear to be driven by selection based on inherent differences in social aptitudes or by Tiebout sorting.
    Keywords: House price capitalization; social capital; homeownership; land and housing supply; reciprocal cooperation.
    JEL: D71 R21 R31
    Date: 2007–08–02
  5. 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
  6. By: Burger, M.J.; Oort, F.G. van; Knaap, G.A. van der (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The modifiable areal unit problem (MAUP) refers to the sensitivity of statistical research results to the initial spatial nomenclature used. Despite a substantial literature in the related field of geography on the potential influence of the MAUP, the urban economic modeling tradition has not paid much attention to this issue. In this article, we test to what extent the MAUP moderates the effect of agglomeration externalities on areal sectoral employment growth by varying the initial geographical scale of analysis. Using spatial cross-regressive modeling in which we account for spatial spillover effects of agglomeration externalities, we find different effects of agglomeration forces across geographical scales. As the MAUP is a theoretical as well as a methodological problem, research should not only work with proper statistical specifications of spatial agglomeration models incorporating different geographical scales, but also relate this more explicitly to hypotheses concerning the geographical scale at which agglomeration externalities operate.
    Keywords: agglomeration externalities;employment growth;spatial econometrics;MAUP
    Date: 2008–11–14
  7. By: Cotteleer, G.; Peerlings, J.H.M.
    Abstract: In highly industrialized areas open spaces such as farmland and nature are under pressure since urban areas are expanding at their expense. Because of the high opportunity costs of development in urban areas, a high price has to be paid for the maintenance or creation of open space. The question is if this high price can be justified by the value of the open space. We estimate the value residents attach to surrounding open space in a hedonic pricing model. More specifically, we investigate in a highly urbanized area in the Netherlands how the externalities of farmland, nature, and other uses, such as industrial areas and the sea affect residential property prices. Moreover, spatial lag and error dependence are corrected for in the hedonic pricing model used to estimate the value of open space and other externalities. According to our results premiums are paid by residents who buy properties close to urban parks and the North Sea and for properties with views on open space.
    Keywords: Hedonic pricing, Spatial econometrics, Externalities, Land Economics/Use,
    Date: 2008
  8. By: Cotteleer, Geerte; Stobbe, Tracy; van Kooten, G. Cornelis
    Abstract: Due to economic and population growth farmland and to a lesser extend other undeveloped areas are under pressure in the urban-rural fringe in British Columbia, Canada. The objectives of this paper are to determine if residential property values near Victoria, BC include open-space premiums for farmland or parks or both, and to determine if using assessed values instead of market prices of the property result in the same findings. We estimate a SUR (Seemingly Unrelated Regression) model with two hedonic pricing equations, one with actual market values as the dependent variable and one with assessed property values, and compare the resulting estimates of shadow prices for open space amenities. Furthermore, we take account of spatial autocorrelation and combine Method of Moment estimates of the spatial parameters in both equations.
    Keywords: Hedonic pricing models, Assessed property values, Value of open space, Geographical Information System, Reilly, GMM, Spatial dependence, Community/Rural/Urban Development, Land Economics/Use, Research Methods/ Statistical Methods,
    Date: 2008
  9. By: Caterina Calsamiglia; Guillaume Haeringer; Flip Klijn
    Abstract: The literature on school choice assumes that families can submit a preference list over all the schools they want to be assigned to. However, in many real-life instances families are only allowed to submit a list containing a limited number of schools. Subjects' incentives are drastically affected, as more individuals manipulate their preferences. Including a safety school in the constrained list explains most manipulations. Competitiveness across schools play an important role. Constraining choices increases segregation and affects the stability and efficiency of the final allocation. Remarkably, the constraint reduces significantly the proportion of subjects playing a dominated strategy.
    Keywords: school choice, matching, experiment
    JEL: C72 C78 D78 I20
    Date: 2008–11–17
  10. By: Larue, S.; Latruffe, L.
    Abstract: The objective of the paper is to assess the effects of agglomeration on technical efficiency of French pig farms. We use a two-stage method to evaluate the effects of agglomeration on technical efficiency. The first stage consists in calculating pig activity€ٳ efficiency scores with the non-parametric method Data Envelopment Analysis (DEA). The second stage is a truncated regression of these scores on agglomeration variables. Data are for 899 French pig producers in 2004. Results suggest that these farms were as much affected by positive agglomeration externalities (that are knowledge spillovers due to farms€٠density, and also arise from farms€٠closeness to downstream market) as any other businesses. There was however no evidence of negative externalities in the form of constraints in farmers€٠land demand due to legal disposition relating to manure spreading.
    Keywords: Agglomeration, Externalities, Data Envelopment Analysis, Industrial Organization, Livestock Production/Industries,
    Date: 2008
  11. By: Minjeong Jeon (University of California, Berkeley); Sophia Rabe-Hesketh (University of California, Berkeley)
    Abstract: We consider multilevel models for longitudinal data where membership in the highest level units changes over time. The application is a four-year study of Korean students who are in middle school during the first two waves and in high school during the second two waves, where middle schools and high schools are not nested. The model includes crossed random effects for middle schools and high schools and can be estimated using Stata¡¯s xtmixed command. An important consideration is how the impact of the middle school and high school random effects on the response variable should change over time.
    Date: 2008–11–16
  12. By: Gautier, Pieter (Free University of Amsterdam); Zenou, Yves (Stockholm University)
    Abstract: We show how small initial wealth differences between low skilled black and white workers can generate large differences in their labor-market outcomes. This even occurs in the absence of a taste for discrimination against blacks or exogenous differences in the distance to jobs. Because of the initial wealth difference, blacks cannot afford cars while whites can. Car ownership allows whites to reach more jobs per unit of time and this gives them a better bargaining position. As a result, in equilibrium, blacks end up with both higher unemployment rates and lower wages than whites. Furthermore, it takes more time for blacks to reach their jobs even though they travel less miles. Those predictions are consistent with the data. Better access to capital markets or better public transportation will reduce the differences in labor market outcomes.
    Keywords: transportation mismatch, job search, spatial labor markets, multiple job centers, ethnic minorities
    JEL: D83 J15 J64 R1
    Date: 2008–11
  13. By: Kerstin Schneider (Department of Economics University of Wuppertal); Hendrik Jürges (MEA Universität Mannheim)
    Abstract: In response to PISA, all German federal states but one have adopted central exit examinations (CEEs) at the end of all secondary school tracks. Theoretically, the advantages of CEEs are fairly undisputed. CEEs make teaching and learning output observable and comparable across schools, and provide incentives for teachers and students to increase their effort. In line with earlier research, we confirm that CEEs have a positive causal effect on student performance. We also investigate what actually drives this effect. We find that the teachers' main reaction to CEEs is to increase the amount of homework, and to check and discuss homework more often. Students report increased learning pressure, which has sizeable negative effects on student attitudes towards learning. Students who take central exit exams in mathematics like mathematics less, think it is less easy and they are more likely to find it boring.
    Keywords: High-stakes testing, student achievement, teacher quality
    JEL: I28 H42 D02
    Date: 2008–06
  14. By: Diana Barro (Department of Applied Mathematics, University of Venice); Antonella Basso (Department of Applied Mathematics, University of Venice)
    Abstract: This contribution presents a network of interdependent firms in which the spatial diffusion of the business relations is described by an entropy spatial interaction model. This network is used in a credit risk model in order to take into account the counterparty risk and describe the resulting contagion effects.
    Keywords: credit risk contagion, networks, counterparty risk, entropy spatial models
    JEL: D61 C63
    Date: 2008–11
  15. By: João Ejarque (University of Essex); Søren Leth-Petersen (Department of Economics, University of Copenhagen)
    Abstract: We characterize savings behavior around the point of the first house purchase. Using a panel data set with income and wealth information on Danish first-time house owners we document that households save for the down payment, mortgage to the limit, run down liquid assets at purchase, and adjust to adverse income shocks occurring just after the purchase by reducing consumption. We build a model that replicates these observations, show that the preference parameters are identified from the data, and estimate them. Based on the estimated model house buying significantly reduces the ability to smooth adverse income shocks.
    Date: 2008–11
  16. By: Hayakawa, kazunobu; Matsuura, Toshiyuki
    Abstract: In literature related to firm location choice, estimation equations are derived from the model of finished goods producers, but producer types are generally not considered. Research presented in this paper shows that the use of equations derived from such models against intermediate goods producers results in several problems.
    Keywords: Industrial management, Manufacturing industries, Economic geography, Econometric model, Cost Linkages, Location Choice
    JEL: F23 H32 R34
    Date: 2008–11
  17. By: Simon Condliffe (Department of Economics,West Chester University of Pennsylvania); William Latham (Department of Economics,University of Delaware); Christian Le Bas (Department of Economics,University of Lyon); Frédéric Miribel
    Abstract: This paper deals with the effects of the geographic concentration of economic activity on productivity through agglomeration economies in the U.S. economy. Our empirical study extends the literature on agglomeration economies in two directions. First we measure and compare the effects on productivity of geographic concentration in either information technology related activity (the IT sector) or in all other economic activities (the non-IT sector). Second we follow Jorgenson’s (2002) reasoning regarding the significance of the differences between IT-producing sectors and IT-using sectors and assess the differential effects of concentration in IT-producing sectors and concentration in IT-using sectors on productivity. We utilize four measures of agglomeration and analyze effects at two levels of geographic disaggregation: U.S. states and U.S. counties. We perform the analysis using a model drawn from the growth accounting literature in which total labor productivity in a region is the dependent variable. It is modeled as a function of the region’s capital-output ratio, the quality of the region’s labor supply as measured by the level of education, and an agglomeration variable measured by concentration in the IT or non-IT sectors or in the IT-producing or IT-using sectors. The cross section estimates for a single year yield mixed results. We find weak evidence in favor of an effect of concentration of IT activity on productivity at the state level. We find stronger effects on productivity at the county level from concentration in IT-producing sectors.
    Keywords: Agglomeration Economies, Information Technology, Productivity
    JEL: R11 O33 D24 D62
  18. By: Komirenko, Z.; Hoermann, D.M.
    Abstract: For the study 240 Kyiv households with urban and peri-urban agriculture (UPA) have been surveyed in 2005. Quotas were assigned to four different types of plots. A standardized questionnaire was developed to collect data on crop and animal production, inputs, sales of produce for income, importance of the plot for self-sufficiency, recreation and leisure time. A factor analysis is employed to reduce attitudinal data. Based on factor scores a cluster analysis is conducted to segment the respondents into more homogeneous groups and to show multiple purposes of UPA. Four clusters labeled as €ܓeekers of leisure activities€ݬ €ܕPA-dependent growers€ݬ €ܒecreation-oriented growers€ݠand €܌ittle engaged growers€ݠare created. Multiple purposes of UPA are shown by profiling the clusters due to demographic, socioeconomic and other selected characteristics. The results show that depending on the type of plot the importance of UPA shifts from livelihood necessity to recreational resource or combines both.
    Keywords: Urban and peri-urban agriculture, livelihood, Ukraine, Farm Management,
    Date: 2008
  19. By: Haruaki Hirota (Graduate School of Economics, Osaka University); Hideo Yunoue (Osaka School of International Public Policy, Osaka University)
    Abstract: This paper considers the possible effects of broader-based local government, especially extended associations, in Japanese local public finance. We mainly analyze scale effects in public long-term care insurance expenditure, with our results indicating a U shaped expenditure structure. We also show that expenditures associated with extended associations decrease more rapidly than ordinary municipal expenditures. These findings suggest that expenditure of appropriate population size extended associations larger than single municipality.
    Keywords: local public finance, scale effects, broader-based local government, extended association, long-term care insurance
    JEL: H73 H75 H83
    Date: 2008–09
  20. By: Paulo Trigo; João Andrade e Silva
    Abstract: The Stability and Growth Pact and the process of fiscal consolidation in several European countries have enhanced the role of fiscal rules at sub-national level. This paper analyzes the combined effect of a rule to allocate capital and current block grants to local governments and the “golden rule” of public finance (surplus of current balance). We argue that the two fiscal rules introduce significant rigidities and distortions in local governments’ expenditures structure since these mimic the structure of revenues. This effect is particularly relevant in municipalities that are more dependent of intergovernmental grants, mainly rural. On the other hand, urban municipalities with greater tax revenues (current revenues) are constrained in their ability to make capital investments because they receive per capita capital grants below what economies of scale would suggest. An empirical analysis of Portuguese local governments shows that it is no longer the median voter, but fiscal rules, that command the broad pattern of expenditure (current versus capital) at a local level. This paper is a contribution to the literature on the perverse effects of fiscal rules.
    Keywords: Intergovernmental block grants; Fiscal Rules; Local Government Expenditure; “Golden Rule”
    JEL: H11 H61 H71 H77
    Date: 2008–07
  21. By: Simon Loertscher; Gerd Muehlheusser
    Abstract: We study a location game where consumers are distributed according to some density f and where market entry is costly and occurs sequentially. This permits an endogenous determination of the number of active ¯rms, their locations and the sequence in which these locations are occupied. While in general the analysis of such games is complicated by the fact that equilibrium locations and the sequence of settlement must be determined simul-taneously, we show that they can be independently derived for certain classes of densities including monotone and, under some additional restrictions, hump-shaped and U-shaped ones. For these classes we characterize the subgame perfect equilibrium outcome. More-over, when f is monotone and concave the equilibrium locations in areas where the density is larger tend to be more pro¯table. When f is uniform the number of ¯rms entering in equilibrium is minimal.
    Keywords: Spatial competition product differentiation dynamic games entry deterrence
    JEL: D43 L13 D21
    Date: 2008
  22. By: Seth Freedman (Department of Economics, University of Maryland); Ginger Zhe Jin (Department of Economics, University of Maryland);
    Abstract: This paper studies peer-to-peer (p2p) lending on the Internet., the first p2p lending website in the US, matches individual lenders and borrowers for unsecured consumer loans. Using transaction data from June 1, 2006 to July 31, 2008, we examine what information problems exist on Prosper and whether social networks help alleviate the information problems. As we expect, data identifies three information problems on First, Prosper lenders face extra adverse selection because they observe categories of credit grades rather than the actual credit scores. This selection is partially offset when Prosper posts more detailed credit information on the website. Second, many Prosper lenders have made mistakes in loan selection but they learn vigorously over time. Third, as Stiglitz and Weiss (1981) predict, a higher interest rate can imply lower rate of return because higher interest attracts lower quality borrowers. Micro-finance theories argue that social networks may identify good risks either because friends and colleagues observe the intrinsic type of borrowers ex ante or because the monitoring within social networks provides a stronger incentive to pay off loans ex post. We find evidence both for and against this argument. For example, loans with friend endorsements and friend bids have fewer missed payments and yield significantly higher rates of return than other loans. On the other hand, the estimated returns of group loans are significantly lower than those of non-group loans. That being said, the return gap between group and non-group loans is closing over time. This convergence is partially due to lender learning and partially due to Prosper eliminating group leader rewards which motivated leaders to fund lower quality loans in order to earn the rewards.
    Keywords: peer-to-peer lending, e-commerce, adverse selection, information asymmetry, social networks.
    JEL: D45 D53 D8 D81
    Date: 2008–11–14
  23. By: Teresa V. Martins; Tanya Araújo; Maria A. Santos; Miguel St Aubyn
    Date: 2008–09
  24. By: Acciani, Claudio; Fucilli, Vincenzo; Sardaro, Ruggiero
    Abstract: In the last twenty years in real estate appraisal there has been a growing interest for new and reliable assessment techniques essentially through the introduction of pluriparametric estimate, in particular of linear regression. However, also these techniques seem having not a great deal of adherence to very complex markets, for which the detection of best suited techniques to investigate market segments is necessary. The aim of the research is to test the applicative possibilities of model tree to land market, in order to highlight possible market segments in the original data set not detectable a priori.
    Keywords: data mining, model tree, multiple regression analysis, land market appraisal, Research Methods/ Statistical Methods, C01,
    Date: 2008–11–14
  25. By: Kukenova, Madina; Monteiro, Jose-Antonio
    Abstract: Since there is so far no estimator that allows to estimate a dynamic panel model that includes a spatial lag as well as other potential endogenous variables. This paper wants to determine if it is suitable to instrument the spatial lag variable (which is by de…finition endogenous/simultaneous) using the instruments proposed by system GMM, i.e. lagged spatial lag values. The Monte Carlo investigation highlights the possibility to estimate a dynamic spatial lag model using the extended GMM proposed by Arellano and Bover (1995) and Blundell and Bover (1998), especially when N and T are large.
    Keywords: Spatial Econometrics; Dynamic Panel Model; System GMM; Monte Carlo Simulations
    JEL: C15 C33
    Date: 2008–07
  26. By: Casey B. Mulligan
    Abstract: When asset values fall, the owners of collateralized loans are not in an enviable position. Nonetheless, they possess a kind of monopoly power over their borrowers that they do not possess when borrowers are solvent. Lenders maximize profits by price discriminating, but create deadweight costs in the process. From the perspective of the aggregate labor market, it is as if lenders were levying their own labor income tax, on top of the taxes already levied by public treasuries. Governments have an incentive to regulate this price discrimination, repudiate part of the private debts, cut their own tax rates, or acquire the debt themselves. These conditions may describe both the 1930s and economic events today.
    JEL: E24 H21 J22
    Date: 2008–11

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