nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2009‒01‒17
39 papers chosen by
Steve Ross
University of Connecticut

  1. Public School Choice and Integration: Evidence from Durham, North Carolina By Robert Bifulco; Helen F. Ladd; Stephen Ross
  2. Empirical application of the housing-market no-arbitrage condition: problems, solutions and a Finnish case study By Elias Oikarinen
  3. Changes in Agglomeration Economies and Linkage Externalities for Japanese Urban Manufacturing Industries:1990 and 2000 By NAKAMURA Ryohei
  4. Exploring the Economic Geography of Ireland By Morgenroth, Edgar
  5. Interaction between housing prices and household borrowing - the Finnish case By Elias Oikarinen
  6. Location of Upstream and Downstream Industries By José Pedro Pontes
  7. Schools, Skills, and Synapses By James J. Heckman
  8. Public Sector decentralization and school performance. International evidence By Torberg Falch; Justina AV Fischer
  9. Information, Liquidity, and the (Ongoing) Panic of 2007 By Gary B. Gorton
  10. Educational Achievement and Ethnicity in Compulsory Schooling By Christian Dustmann; Stephen Machin; Uta Schönberg
  11. Spatial Concentration of the Informal Small and Cottage Industry in Indonesia By Aloysius Gunadi, Brata
  12. Rational expectations in urban economics By Berliant, Marcus; Yu, Chia-Ming
  13. Auswirkungen der Bevölkerungsentwicklung auf das wirtschaftliche Niveau der Regionen in Deutschland By Hans-Friedrich Eckey; Reinhold Kosfeld; Nina Muraro
  14. Staying together for the sake of the home? House price shocks and partnership dissolution in the UK By Rainer H; Smith I
  15. Stages of the 2007/2008 Global Financial Crisis: Is There a Wandering Asset-Price Bubble? By Orlowski, Lucjan T
  16. Tax, Credit Constraints, and the Big Costs of Small Inflation By Andrew Coleman
  17. The Impact of Regional Absorptive Capacity on Spatial Knowledge Spillovers By Andrea Caragliu; Peter Nijkamp
  18. The Interaction of Metropolitan Area Costs and the Federal Earned Income Tax Credit: One Size Fits All? By Katie Fitzpatrick; Jeffrey P. Thompson
  19. Peer Effects and Social Networks in Education By Antoni Calvó-Armengol; Eleonora Patacchini; Yves Zenou
  20. Regional Labor Markets and Aging in Germany By Carsten Ochsen
  21. Did Railroads Induce or Follow Economic Growth? Urbanization and Population Growth in the American Midwest, 1850-60 By Jeremy Atack; Fred Bateman; Michael Haines; Robert A. Margo
  22. The risk of home mortgages in Italy: evidence from one million contracts By Emilia Bonaccorsi di Patti; Roberto Felici
  23. Banking competition, housing prices and macroeconomic stability By Javier Andrés; Óscar J. Arce
  24. Identity and educational choice: a behavioral approach By Yuemei JI
  25. The Determinants of Mode of Transport to Work in the Greater Dublin Area By Commins, Nicola; Nolan, Anne
  26. The Aftermath of Financial Crises By Carmen M. Reinhart; Kenneth S. Rogoff
  27. Taking the Easy Way Out: How the GED Testing Program Induces Students to Drop Out By James J. Heckman; Paul A. LaFontaine; Pedro L. Rodriguez
  28. Voluntary Cleanups and Redevelopment Potential: Lessons from Baltimore, Maryland By Anna Alberini; Dennis Guignet
  29. Is the Median Voter Decisive? Evidence of 'Ends Against the Middle' From Referenda Voting Patterns By Eric J. Brunner; Stephen L. Ross
  30. The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong By John B. Taylor
  31. The model of the linear city under a triangular distribution of consumers: an empirical analysis on price and location of beverage kiosks in Catania By Torrisi, Gianpiero
  32. The model of the linear city under a triangular distribution of consumers: an empirical analysis on price and location of beverage kiosks in Catania By Torrisi, Gianpiero
  33. Testing for Heteroskedasticity and Spatial Correlation in a Random Effects Panel Data Model By Badi H. Baltagi; Seuck Heun Song; Jae Hyeok Kwon
  34. The Spread of the Credit Crisis: View from a Stock Correlation Network By Smith, Reginald
  35. The geography of hospital admission in a National Health Service with patient choice: evidence from Italy. By Fabbri, D; Robone, S
  36. Priorities in the Location of Multiple Public Facilities By Olivier Bochet; Sidartha Gordon
  37. Leave No Child Behind: A Quick Take on How Congress Should Restructure the Child Tax Credit to More Fairly Value Families and Reduce Inequality By Shawn Fremstad
  38. A Dynamic Analysis of Household Car Ownership in Ireland By Nolan, Anne
  39. Is the financial crisis causing a recession? By Tatom, John

  1. By: Robert Bifulco (Center for Policy Research, Maxwell School, Syracuse University, Syracuse, NY 13244-1020); Helen F. Ladd; Stephen Ross
    Abstract: Using evidence from Durham, North Carolina, we examine the impact of school choice programs on racial and class-based segregation across schools. Theoretical considerations suggest that how choice programs affect segregation will depend not only on the family preferences emphasized inthe sociology literature but also on the linkages between student composition, school quality and student achievement emphasized in the economics literature. Reasonable assumptions about the distribution of preferences over race, class, and school characteristics suggest that the segregating choices of students from advantaged backgrounds are likely to outweigh any integrating choices by disadvantaged students. The results of our empirical analysis are consistent with these theoretical considerations. Using information on the actual schools students attend and on the schools in their assigned attendance zones, we find that schools in Durham are more segregated by race and class as a result of school choice programs than they would be if all students attended their geographically assigned schools. In addition, we find that the effects of choice on segregation by class are larger than the ffects on segregation by race.
    Keywords: Racial segregation, School choice
    JEL: H31 I20
    Date: 2008–09
  2. By: Elias Oikarinen (Department of Economics, Turku School of Economics)
    Abstract: The often used housing price-to-income and housing price-to-rent ratios are problematic in housing market analysis and may result in misleading conclusions. Instead, the no-arbitrage condition of housing market is a theoretically sound basis to evaluate if housing prices are misaligned. Unfortunately, empirical applica-tion of the no-arbitrage condition has notable complications. This article reviews these complications and suggests some solutions to them. The use of implied expected appreciation derived from the no-arbitrage condition is recommended. It is also claimed that the real appreciation is better to use than the nominal one in the no-arbitrage computations. Furthermore, the paper shows that the maintenance costs as a fraction of housing price vary substantially in time and location, which may significantly affect the equilibrium housing price level relative to rental prices. An empirical application of the no-arbitrage relation using data from ten Finnish cities shows that housing price level in 2007 was not based on high expected appreciation. This lowers the fears for a price bubble.
    Keywords: Housing, no-arbitrage condition, overpricing, user cost
    JEL: R21
    Date: 2008–10
  3. By: NAKAMURA Ryohei
    Abstract: Urban agglomeration economies are usually divided into two categories: urbanization economies and localization economies. In the 1970s and 1980s, a number of attempts were made to estimate urbanization economies and/or localization economies directly in the production function. Since the work by Glaeser et al. in 1992, however, historical effects on agglomeration called dynamic externalities in agglomeration are tried to estimate indirectly by use of the growth equation of urban labor force extensively. These externalities are called MAR in a dynamic sense, whereas traditional agglomeration economies are evaluated in static sense. Alongside urbanization and localization, more traditional sources of industrial concentration are found in various industrial linkages, such as customer and supplier linkages or backward and forward linkages. These linkage effects come from the concentration of different kinds of industries whereas localization economies mean the benefit from the concentration of firms within the same industry. Also, linkage effects are often referred as pecuniary externalities. This paper tries to clarify theose agglomeration concepts, and to construct an estimable model of linkage effects among industries as well as agglomeration economies, and to estimate these effects separately within the framework of the Translog production function. In this model intermediate inputs play an important role as linkage effects. Also, in order to investigate the change of agglomeration economies the estimations are implemented using data for 1990 and 2000. The empirical analysis is based on two-digit data for manufacturing industries in Japanese cities. The estimated results regarding agglomeration economies vary significantly among the two-digit industries, but most of the agglomeration effects have fallen since 1990.
    Date: 2008–12
  4. By: Morgenroth, Edgar (ESRI)
    Abstract: Only a few research papers have analysed the spatial distribution of economic activity in Ireland. There are a number of reasons for this, not least the fact that comprehensive data on the location of economic activity by sector across all sectors has not been available at the highly disaggregated spatial level. This paper firstly establishes the geographic distribution of employment at the 2 digit NACE level, using a novel approach that utilises a special tabulation from the CSO 2006 Census of Population Place of Work Anonymised Records (POWCAR). It then analyses the spatial patterns of this distribution using maps and more formal methods such measures of spatial concentration and tests for spatial autocorrelation. The paper considers the locational preferences of individual sectors, the degree to which specific sectors agglomerate and co-agglomerate, and thus will uncover urbanisation effects and differences across urban and rural areas regarding economic activity.
    Keywords: economic geography/employment distribution/Ireland
    JEL: R12 R14 R30
    Date: 2008–12
  5. By: Elias Oikarinen (Department of Economics, Turku School of Economics)
    Abstract: Housing prices and household borrowing are expected to be tightly connected to each other. Better availability of credit eases liquidity constraints of households, which is likely to lead to higher demand for housing. On the other hand, housing prices may significantly influence household borrowing through various wealth effects. Employing time series econometrics this study shows that since the financial liberalization in the late 1980s there has been a significant two-way interaction between housing prices and housing loan stock in Finland. Before the financial deregulation the interaction was substantially weaker. Furthermore, housing appreciation has a notable positive impact on the amount of consumption loans withdrawn by households. It appears that there is no similar relationship between stock price movements and household borrowing. Understanding the two-way interaction between housing prices and credit is of importance, since the interdependence is likely to augment boom-bust cycles in the economy and increase the fragility of the financial sector.
    Keywords: lending, borrowing, housing, dynamics
    JEL: E41 E51 R21
    Date: 2008–02
  6. By: José Pedro Pontes
    Abstract: This paper studies the issue of agglomeration versus fragmentation of vertically related industries. While the downstream industry works under perfect competition, the upstream industry is a duopoly where each firm supplies a differentiated input to the competitive firms. These process the inputs under a quadratic production function entailing decreasing returns as in PENG, THISSE and WANG (2006). It is found that fragmentation occurs if the transport cost of final goods is medium to high, while the transport cost of inputs is low. Otherwise, agglomeration prevails. Multiple agglomerated equilibria are possible if the transport cost of intermediate goods is either medium or high.
    Keywords: Oligopoly; Vertically-Linked Firms; Location; Spatial Fragmentation.
    JEL: L13 R10
    Date: 2008–03
  7. By: James J. Heckman (University of Chicago)
    Abstract: This paper discusses (a) the role of cognitive and noncognitive ability in shaping adult outcomes, (b) the early emergence of differentials in abilities between children of advantaged families and children of disadvantaged families, (c) the role of families in creating these abilities, (d) adverse trends in American families, and (e) the effective- ness of early interventions in offsetting these trends. Practical issues in the design and implementation of early childhood programs are discussed.
    Keywords: productivity, high school dropout, ability gaps, family influence, noncognitive skills, early interventions
    Date: 2008–12–15
  8. By: Torberg Falch; Justina AV Fischer
    Abstract: Using a panel of international student test scores, 1980 – 2000, panel fixed effects estimates suggest that government spending decentralization is conducive to student performance. The effect does not appear to be mediated through levels of, or decentralization in, educational spending.
    Keywords: Fiscal decentralization, Student achievement, federalism, PISA, TIMSS, education, school quality
    Date: 2008
  9. By: Gary B. Gorton
    Abstract: The credit crisis was sparked by a shock to fundamentals, housing prices failed to rise, which led to a collapse of trust in credit markets. In particular, the repurchase agreement market in the U.S., estimated to be about $12 trillion, larger than the total assets in the U.S. banking system ($10 trillion), became very illiquid during the crisis due to the fear of counterparty default, leaving lenders with illiquid bonds that they did not want, believing that they could not be sold. As a result, there was an increase in repo haircuts (the initial margin), causing massive deleveraging. I investigate this indirectly, by looking at the breakdown in the arbitrage foundation of the ABX.HE indices during the panic. The ABX.HE indices of subprime mortgage-backed securities are derivatives linked to the underlying subprime bonds. Introduced in 2006, the indices aggregated and revealed information about the value of the subprime mortgage-backed securities and allowed parties to buy protection against declines in subprime value via credit derivatives written on the index or tranches of the index. When the ABX prices plummeted, the arbitrage relationships linking the credit derivatives linked to the index and the underlying bonds broke down because liquidity evaporated in the repo market. This breakdown allows a glimpse of the information problems that led to illiquidity in the repo markets, and the extent of the demand for protection against subprime risk.
    JEL: G1 G13 G21
    Date: 2009–01
  10. By: Christian Dustmann; Stephen Machin; Uta Schönberg (Centre for Research and Analysis of Migration (CReAM), Department of Economics UCL, CEP LSE and CEPR, IAB)
    Abstract: This paper analyzes the evolution of the attainment gap between white British born and ethnic minority pupils throughout compulsory schooling, from the age of 5 to 16. At the start of school, pupils from most ethnic groups substantially lag behind White British pupils, but these gaps decline for all groups throughout primary and secondary school. Language is the single most important factor why most ethnic minority pupils improve relative to White British pupils. Although poverty explains part of the differences in levels, it cannot explain why ethnic minority pupils gain relative to or even overtake White British pupils. All ethnic minority groups initially attend worse performing schools than White British pupils. However, more than 20 percent of the subsequent relative improvement can be attributed to ethnic minority pupils moving up to better schools relative to White British pupils. Finally, our results suggest the possibility that the relative improvement of ethnic minority pupils may be related to teacher incentives to concentrate attention on particular pupils, caused by the publication of school league tables at the end of secondary school.
    Date: 2008–10
  11. By: Aloysius Gunadi, Brata
    Abstract: This paper discusses the spatial concentration of the small and cottage industry without legal entity in Indonesia. The study period is 1998-2004 or a period after economic crisis which commonly known as the ‘era reformasi’ (reformation era). By employing the Herfindahl index, this study found an increase in the spatial concentration of the informal small and cottage industry during this period. It argues that reformation tend to increase the spatial concentration of the informal small and cottage industry. Beside the economic crisis that have suffered urban and Java areas, other possible explanation on the connection between trend of the concentration and the reformation is what commonly known as the cost of formality.
    Keywords: spatial concentration; small and cottage industry; reformation; Indonesia
    JEL: O18 O17 R11
    Date: 2007
  12. By: Berliant, Marcus; Yu, Chia-Ming
    Abstract: Canonical analysis of the classical general equilibrium model demonstrates the existence of an open and dense subset of standard economies that possess fully-revealing rational expectations equilibria. This paper shows that the analogous result is not true in urban economies. An open subset of economies where none of the rational expectations equilibria fully reveal private information is found. There are two important pieces. First, there can be information about a location known by a consumer who does not live in that location in equilibrium, and thus the equilibrium rent does not reflect this information. Second, if a consumer’s utility depends only on information about their (endogenous) location of residence, perturbations of utility naturally do not incorporate information about other locations conditional on their location of residence. Existence of a rational expectations equilibrium is proved. Space can prevent housing prices from transmitting information from informed to uninformed households, resulting in an inefficient outcome.
    Keywords: Urban Economics; General Equilibrium; Private Information; Rational Expectations
    JEL: R13 D82 D51
    Date: 2009–01–13
  13. By: Hans-Friedrich Eckey (University Kassel, Nora-Platiel-Str. 4, 34109 Kassel); Reinhold Kosfeld (University Kassel, Nora-Platiel-Str. 5, 34109 Kassel); Nina Muraro (University Kassel, Nora-Platiel-Str. 4, 34109 Kassel)
    Abstract: This paper examines the impact of demographic change on production today and in 2020. For the estimation a translog production function is used. The results show a mostly divergent development. It is shown that there is a strong centre-periphery disparity. Taking the population in 2020 into account the result is confirmed with an east-west disparity between peripheral regions in East Germany and urban regions in West Germany. Further there is also a north-south disparity detected because there is a higher increase of the factor labour in southern regions than in the other ones. Generally the cities have a greater benefit from immigration than the peripheral regions. They are confronted with a tendency of shrinkage. The conflict of growth and allocation arises from the point of view of economic policy.
    Keywords: regional production function, productivity, spatial distribution, demographic change
    JEL: D24 E23 J11 R11 R12
    Date: 2009
  14. By: Rainer H (School of Economics and Finance, University of St Andrews); Smith I (School of Economics and Finance, University of St Andrews)
    Abstract: This paper explores the importance of unanticipated house price shocks for marital dissolution in the UK using individual household data from the British Household Panel Survey (BHPS) and county-level house price data from the Halifax House Price Index (HHPI). Results suggest that positive and negative house price shocks have asymmetric effects on the probability of partnership dissolution. Negative house price shocks significantly increase the risk of part- nership dissolution, while positive house price shocks do not have a significant effect in general. The destabilizing effect of negative house price shocks is par- ticularly pronounced for couples with dependent children, low family income, and high mortgage debt. Results are robust to a wide variety of specifications.
    Date: 2008–09–22
  15. By: Orlowski, Lucjan T
    Abstract: This study identifies five distinctive stages of the current global financial crisis: the meltdown of the subprime mortgage market; spillovers into broader credit market; the liquidity crisis epitomized by the fallout of Northern Rock, Bear Stearns and Lehman Brothers with counterparty risk effects on other financial institutions; the commodity price bubble, and the ultimate demise of investment banking in the U.S. The study argues that the severity of the crisis is influenced strongly by changeable allocations of global savings coupled with excessive credit creation, which lead to over-pricing of varied types of assets. The study calls such process a “wandering asset-price bubble”. Unstable allocations elevate market, credit and liquidity risks. Monetary policy responses aimed at stabilizing financial markets are proposed.
    Keywords: subprime mortgage crisis; credit crisis; liquidity crisis; market risk; credit risk; default risk; counterparty risk; collateralized debt obligations; Level 3 Assets; Basel II
    JEL: G12 G15 E44 G21
    Date: 2008–12–10
  16. By: Andrew Coleman (Motu Economic and Public Policy Research)
    Abstract: This paper develops an overlapping generations model incorporating credit constraints, owner-occupier and rental sectors, and detailed tax regulations to examine how the interaction of inflation and the tax system affect the housing market. It shows that even modest rates of inflation can have very large effects on the home-ownership rates of young households, particularly at low real interest rates. This occurs even if there is a large supply response in the quantity of housing. The model suggests that the welfare costs of inflation could be ameliorated by exempting the inflation component of interest payments from income tax.
    Keywords: Inflation, credit constraints, capital income taxes, housing markets, home-ownership rates, monetary policy
    JEL: E40 E58
    Date: 2008–12
  17. By: Andrea Caragliu (Politecnico di Milano); Peter Nijkamp (VU University Amsterdam)
    Abstract: We design a conceptual framework for linking two approaches: the literature on absorptive capacity and the literature on spatial knowledge spillovers. Regions produce new knowledge, but only part of it is efficiently adopted in the economy; the share of efficiently adopted technology depends on territorial capital. Our data set is based on a panel of European regions over the period 1999-2005, combining data from EUROSTAT and the European Values Study (EVS); we test the hypothesis that insufficient levels of territorial capital hamper the capability of regions to grasp and fully exploit new knowledge. Results show that a lower regional absorptive capacity increases knowledge spillovers towards surrounding areas, hampering the regions’ capability to understand, decode and efficiently exploit new knowledge, both locally produced and originating from outside.
    Keywords: Absorptive capacity; knowledge spillovers; total factor productivity; spatial econometrics
    JEL: O33 R11
    Date: 2008–12–15
  18. By: Katie Fitzpatrick (Center for Policy Research, Maxwell School, Syracuse University, Syracuse, NY 13244-1020); Jeffrey P. Thompson (Center for Policy Research, Maxwell School, Syracuse University, Syracuse, NY 13244-1020)
    Abstract: The Federal Earned Income Tax Credoit (EITC) contributed to increasing employment rates for single women during the 1990s. This paper expands on what is known about the labor supply response to the EITC by exploiting differences in the cost-of-living faced by potentially eligible recipients in different geographic areas. Using the 1993 EITC expansion, we demonstrate that the labor supply response varies considerably with metropolitan area cost-of-living. We identify an increase in labor force participation among single mothers of as much as 10 percentage points in the lowest cost metropolitan areas. There is no discernable participation response in metropolitan areas with the highest housing costs, where approximately 40 of the population lives. We find little response along the intensive margin, regardless of the costs in the metropolitan area. We conclude that the welfare-enhancing effects of the EITC are undermined by the interaction of the program's fixed national rules and geographic variation in wages and cost of living. In addition, our findings suggest that the federal EITC does little to reduce joblessness in many of the nation's largest cities.
    Keywords: EITC, cost-of-living, tax reform, labor supply
    JEL: H24 H31 I31 J22 R23
    Date: 2008–09
  19. By: Antoni Calvó-Armengol; Eleonora Patacchini; Yves Zenou (Universitat Autònoma de Barcelona,Università di Roma “La Sapienza”, Stockholm University, IFN, GAINS, and CREAM)
    Abstract: This paper studies whether structural properties of friendship networks affect individual outcomes in education. We first develop a model that shows that, at the Nash equilibrium, the outcome of each individual embedded in a network is proportional to her Katz-Bonacich centrality measure. This measure takes into account both direct and indirect friends of each individual but puts less weight to her distant friends. We then bring the model to the data by using a very detailed dataset of adolescent friendship networks. We show that, after controlling for observable individual characteristics and unobservable network specific factors, the individual’s position in a network (as measured by her Katz-Bonacich centrality) is a key determinant of her level of activity. A standard deviation increase in the Katz- Bonacich centrality increases the pupil school performance by more than 7 percent of one standard deviation.
    Date: 2008–11
  20. By: Carsten Ochsen (University of Rostock)
    Abstract: This paper analyzes how the aging labor force a¤ects the unem- ployment rate at the regional level in Germany. A theoretical model of equilibrium unemployment with spatial labor market interactions is used to study the e¤ects of age-related changes in job creation and job destruction. Using data for 343 districts, we then examine empirically the consequences of an aging labor force for the local labor markets in Germany. We apply di¤erent estimation techniques to a spatial and time dynamic panel data model. According to the estimates, aging causes an increase in job destruction. In addition, aging in the local labor market increases job creation, while the spatial aging e¤ect on job creation in the local district is negative.
    Keywords: Regional Unemployment, Vacancies and Separations, Job Creation, Regional Mobility, Spatial Interactions and Matching, Aging of the Labor Force
    JEL: J64 J63 J23 J61 R12 J10
    Date: 2009
  21. By: Jeremy Atack; Fred Bateman; Michael Haines; Robert A. Margo
    Abstract: For generations of scholars and observers, the "transportation revolution," especially the railroad, has loomed large as a dominant factor in the settlement and development of the United States in the nineteenth century. There has, however, been considerable debate as to whether transportation improvements led economic development or simply followed. Using a newly developed GIS transportation database we examine this issue in the context of the American Midwest, focusing on two indicators of broader economic change, population density and the fraction of population living in urban areas. Our difference in differences estimates (supported by IV robustness checks) strongly suggest that the coming of the railroad had little or no impact upon population densities just as Albert Fishlow concluded some 40 years ago. BUT, our results also imply that the railroad was the "cause" of midwestern urbanization, accounting for more than half of the increase in the fraction of population living in urban areas during the 1850s.
    JEL: N12 N71 O14 O18
    Date: 2009–01
  22. By: Emilia Bonaccorsi di Patti (Banca d'Italia); Roberto Felici (Banca d'Italia)
    Abstract: This study analyzes the main characteristics of loans for house purchase issued in Italy between 2004 and 2007 employing the data on individual contracts from the Sample Survey of Lending Rates. Variables describing the type of mortgage and the borrower are related to the ex post probability of late payments and defaults. We also estimate the difference in ex post risk between mortgages that have subsequently been securitized and those that have not. The main results are: variable rate contracts proved to be more risky than fixed rate contracts; the difference is larger for mortgages issued at the end of 2005, when market rates were at their lowest; late payments have been more frequent for borrowers that are younger, resident in the South or immigrants from non-EU countries; non-securitized mortgages were more likely to run into difficulties with late payments and defaults than securitized ones.
    Keywords: home mortgages, credits
    JEL: G21
    Date: 2008–10
  23. By: Javier Andrés (Universidad de Valencia); Óscar J. Arce (Banco de España)
    Abstract: We develop a dynamic general equilibrium model with an imperfectly competitive bank-loans market and collateral constraints that tie investors credit capacity to the value of their real estate holdings. Banks set optimal lending rates taking into account the effects of their price policies on their market share and on the volume of funds demanded by each customer. Lending margins have a significant effect on aggregate variables. Over the long run, fostering banking competition increases total consumption and output by triggering a reallocation of available collateral towards investors. However, as regards the short-run dynamics, we find that most macroeconomic variables are more responsive to exogenous shocks in an environment of highly competitive banks. Key to this last result is the reaction of housing prices and their effect on borrowers' net worth. The response of housing prices is more pronounced when competition among banks is stronger, thus making borrowers' net worth more vulnerable to adverse shocks and, specially, to monetary contractions. Thus, regarding changes in the degree of banking competition, the model generates a trade-off between the long run level of economic activity and its stability at the business cycle frequency.
    Keywords: banking competition, collateral constraints, housing prices
    JEL: E32 E43 E44 G21
    Date: 2009–01
  24. By: Yuemei JI
    Abstract: It is puzzling that socioeconomic background greatly affects educational choice. Distinguished from the explanations based on expected utility theory, this paper attempts to explore the psychological mechanisms of generating educational identity1 and schooling choice. It offers a self-signaling model where (1) it incorporates self-esteem concerns into the agent’s payoff function, (2) the investment in schooling not only signals her cognitive ability but also brings the agent into cognitive dissonance and reduction when the perceptions of ability are time-dependent. Using this model, I show a more discriminating analysis of educational choice which combines multi-dimensional factors including socioeconomic background, cognitive and non-cognitive abilities. I identify the conditions under which the high ability agent fails to invest in education. The quality of school and the preschooling are key variables. The model suggests that public policy can help poor children by improving both the early and later education quality at school.
    Keywords: identity, educational choice, poverty
    JEL: D81 I30
    Date: 2008–11
  25. By: Commins, Nicola (ESRI); Nolan, Anne (ESRI)
    Abstract: Rapid economic and demographic change in the Greater Dublin Area over the last decade, with associated increases in car dependence and congestion, has focused policy on encouraging more sustainable forms of travel. In this context, knowledge of current travel patterns and their determinants is crucial. Here we concentrate on travel for a specific journey purpose, namely the journey to work. We employ cross-section micro-data from the 2006 Census of Population to analyse the influence of travel and supply-side characteristics, as well as demographic and socio-economic characteristics on the choice of mode of transport to work in the Greater Dublin Area.
    Keywords: policy
    Date: 2008–12
  26. By: Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: This paper examines the depth and duration of the slump that invariably follows severe financial crises, which tend to be protracted affairs. We find that asset market collapses are deep and prolonged. On a peak-to-trough basis, real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Not surprisingly, banking crises are associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls an average of over 9 percent, although the duration of the downturn is considerably shorter than for unemployment. The real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes. The main cause of debt explosions is usually not the widely cited costs of bailing out and recapitalizing the banking system. The collapse in tax revenues in the wake of deep and prolonged economic contractions is a critical factor in explaining the large budget deficits and increases in debt that follow the crisis. Our estimates of the rise in government debt are likely to be conservative, as these do not include increases in government guarantees, which also expand briskly during these episodes.
    JEL: E32 E44 F3 N20
    Date: 2009–01
  27. By: James J. Heckman (Department of Economics, University of Chicago); Paul A. LaFontaine (American Bar Foundation); Pedro L. Rodriguez (Center for Social Program Evaluation, Irving B. Harris School of Public Policy)
    Date: 2008–12–15
  28. By: Anna Alberini (University of Maryland); Dennis Guignet (University of Maryland)
    Abstract: Policy has increasingly shifted towards economic incentives and liability attenuation for promoting cleanup and redevelopment of contaminated sites, but little is known about the effectiveness of such policies. An example of such legislation is State Voluntary Cleanup Programs (VCPs), which were established in the US in the 1990s and to date have been implemented in almost every state. We examine Baltimore properties that participated in the Maryland VCP from its inception in 1997 to the end of 2006. Specifically, we examine what type of properties tend to participate in these programs, how these properties compare to other eligible but non-participating sites, and what is the redevelopment potential of VCP properties and implications towards open space conversion. We find that most applicants (66%) actually requested a “No Further Action Determination” directly, rather than proposing cleanup. VCP properties tend to be industrial, located in industrial areas, and away from residential neighborhoods. In more recent years larger industrial properties have increasingly enrolled in the program. The majority of sites are reused as industrial or commercial. In contrast to Alberini (2007), this suggests that pressure for residential development does not drive VCP participation. Based on differences in zoning requirements, the VCP may reduce demand for potentially contaminating activities on pristine land by as much as 1,238 to 6,444 acres, in Baltimore alone.
    Keywords: Brownfields, Contaminated Sites, Voluntary Cleanup Programs, Incentives
    JEL: R14 Q58 K32
    Date: 2008–10
  29. By: Eric J. Brunner (Quinnipiac University); Stephen L. Ross (University of Connecticut)
    Abstract: This paper examines whether the voter with the median income is decisive in local spending decisions. Previous tests have relied on cross-sectional data while we make use of a pair of California referenda to estimate a first difference specification. The referenda proposed to lower the required vote share for passing local educational bonding initiatives from 67 to 50 percent and 67 to 55 percent, respectively. We find that voters rationally consider future public service decisions when deciding how to vote on voting rules, but the empirical evidence strongly suggests that an income percentile below the median is decisive for majority voting rules. This finding is consistent with high income voters with weak demand for public educational services voting with the poor against increases in public spending on education.
    Keywords: Median Voter Hypothesis, Voting, Referenda, Education Spending
    JEL: H4 H7 I2
    Date: 2009–01
  30. By: John B. Taylor
    Abstract: This paper is an empirical investigation of the role of government actions and interventions in the financial crisis that flared up in August 2007. It integrates and summarizes several ongoing empirical research projects with the aim of learning from past policy. The evidence is presented in a series of charts which are backed up by statistical analysis in these research projects.
    JEL: E0
    Date: 2009–01
  31. By: Torrisi, Gianpiero
    Abstract: This paper presents a model of oligopolistic competition under horizontal differentiation of products and a triangular distribution of consumers. The triangular distribution aims to represent a case of concentration of consumers around the central location. The main result is that a good deal of differentiation among products is achieved also under such assumption concerning the consumers’ distribution. This means that the incentive to differentiate – to some extent - prevails on the incentive to the central location, although consumers are concentrated in the central location. The analysis on an original empirical case-study is presented, concerning the choice of beverage retails in a town. The empirical evidence is consistent with the theoretical model.
    Keywords: Product differentiation; Hotelling; Empirical analysis
    JEL: C10 C00 C70
    Date: 2008–01
  32. By: Torrisi, Gianpiero
    Abstract: This paper presents a model of oligopolistic competition under horizontal differentiation of products and a triangular distribution of consumers. The triangular distribution aims to represent a case of concentration of consumers around the central location. The main result is that a good deal of differentiation among products is achieved also under such assumption concerning the consumers’ distribution. This means that the incentive to differentiate – to some extent - prevails on the incentive to the central location, although consumers are concentrated in the central location. The analysis on an original empirical case-study is presented, concerning the choice of beverage retails in a town. The empirical evidence is consistent with the theoretical model.
    Keywords: product differentiation; Hotelling; consumers distribution; empirical analysis.
    JEL: L13 D43 C72
    Date: 2008–01
  33. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, Syracuse, NY 13244-1020); Seuck Heun Song; Jae Hyeok Kwon
    Abstract: A panel data regression model with heteroskedastic as well as spatially correlated disturbance is considered, and a joint LM test for homoskedasticity and no spatial correlation is derived. In addition, a conditional LM test for no spatial correlation given heteroskedasticity, as well as a conditional LM test for homoskedasticity given spatial correlation, are also deerived. These LM tests are compared with marginal LM tests that ignore heteroskedasticity in testing for spatial correlation, or spatial correlation in testing for homoskedasticity. Monte Carlo results show that these LM tests as well as their LR counterparts perform well even for small N and T. However, misleading inference can occur when using marginal rather than joint or conditional LM tests when spatial correlation or heteroskedasticity is present.
    Keywords: Panel data, heteroskedasticity, spatial correlation, Lagrange multiplier tests, random effects
    JEL: C12 C23
    Date: 2008–07
  34. By: Smith, Reginald
    Abstract: The credit crisis roiling the world's financial markets will likely take years and entire careers to fully understand and analyze. A short empirical investigation of the current trends, however, demonstrates that the losses in certain markets, in this case the US equity markets, follow a cascade or epidemic flow like model along the correlations of various stocks. A few images and explanation here will suffice to show the phenomenon. Also, whether the idea of "epidemic" or a "cascade" is a metaphor or model for this crisis will be discussed. Animations of the spread of the crisis are available at editcrisis
    Keywords: networks; econophysics; equities; stock market; correlation; credit crisis
    JEL: G15 G10
    Date: 2008–11–11
  35. By: Fabbri, D; Robone, S
    Abstract: It is evaluated that, each year, 35% out of the 10 million hospital admissions in Italy take place outside the LHAs of residence. In our paper we try to give an explanation of this phenomenon making reference to the social gravity model of spatial interaction. We estimate gravity equations using a Poisson pseudo maximum likelihood method, as proposed by Santos-Silva and Tenreyro (2006). Our results suggest that the gravity model is a good framework for explaining the patient mobility phenomenon for most of the examined diagnostic groups. Our evidence suggests that the ability to contain the imports of hospital services increases with the size of the pool of enrolees. Moreover we find that the ability to export hospital services, as proxied by the ratio of export-to-internal demand, is U-shaped. Therefore our evidence suggests that there are scale effect played by the size of the pool of enrolees.
    Keywords: patients’ mobility, hospital care, gravity model, Italian National Health Service
    Date: 2008–12
  36. By: Olivier Bochet; Sidartha Gordon
    Abstract: A collective decision problem is described by a set of agents, a profile of single-peaked preferences over the real line and a number k of public facilities to be located. We consider public facilities that do not suffer from congestion and are non-excludable. We provide a characterization of the class of rules satisfying Pareto-efficiency, object-population monotonicity and sovereignty. Each rule in the class is a priority rule that selects locations according to a predetermined priority ordering among "interest groups". We characterize each of the subclasses of priority rules that respectively satisfy anonymity, hiding-proofness and strategy-proofness. In particular, we prove that a priority rule is strategy-proof if and only if it partitions the set of agents into a fixed hierarchy. Alternatively, any such rule can be viewed as a collection of fixed-populations generalized peak-selection median rules (Moulin, 1980), that are linked across populations, in a way that we describe.
    Keywords: Multiple public facilities; Priority rules; Hierarchical rules; Object-population monotonicity; Sovereignty; Anonymity; Strategy-proofness; Generalized median rules; Hiding-proofness
    JEL: D60 D63 D70 D71 H41
    Date: 2008–02
  37. By: Shawn Fremstad
    Abstract: This issue brief examines the Child Tax Credit (CTC) in its current form and finds that many of the families with children most in need of additional assistance receive no or little benefit from the credit. The paper analyzes a restructuring of the present CTC put forth by the Brookings Institute and goes on to propose amending the CTC to make it both more inclusive and progressive.
    Keywords: child tax credit
    JEL: I I3 I38 H H2 H24
    Date: 2009–01
  38. By: Nolan, Anne (ESRI)
    Abstract: This paper examines the determinants of household car ownership in Ireland, using longitudinal data for the period 1995-2001. This was a period of rapid economic and social change in Ireland, with the proportion of households with one or more cars growing from 74.6 per cent to 80.8 per cent over the period. Understanding the determinants of household car ownership, a key determinant of household travel behaviour more generally, is particularly important in the context of current policy developments which seek to encourage more sustainable means of travel. In this paper, we exploit the availability of longitudinal data to estimate dynamic models of household car ownership, controlling for unobserved heterogeneity and state dependence. We find income and previous car ownership to be the strongest determinants of differences in household car ownership. Other important influences include household composition (in particular, the presence of young children) and lifecycle effects, which create further challenges for policymakers in seeking to change travel behaviour.
    Keywords: Car Ownership/Panel Data/Random Effects Probit/Ireland
    Date: 2008–12
  39. By: Tatom, John
    Abstract: The U.S. entered a recession in December 2007. Coming in train with a foreclosure crisis that began in late 2006 and its associated financial crisis that began in August 2007, there is a tendency for analysts to attribute the recession to the financial crisis. The worst aspects of the financial crisis that attract attention today did not begin until September 2008 well after the recession began. Other factors account for the recession and could portend the imminent end to the current recession. A leading candidate for the cause of the current recession is the Federal Reserve (Fed). The Fed has caused every post-world war II recession, according to most experts, especially Milton Friedman. In late 2006 there already were signs of a sharp slowing in money growth in place portending recession; see Tatom (2006). This slowing lasted until September 2008. The recent recession has also been influenced by sharp increase in oil prices in 2007-08 that raised the relative price of energy. Subsequently, oil prices fell sharply. Thus, like the monetary policy influence, the energy price shock influence on the recession is in the process of rapidly disappearing and reversing. This is similar to the oil price shock related to the first Kuwait-Iraq war in 1990-91 when a larger and faster run-up in oil prices created a recession followed by a quick reversal of oil prices and economic recovery. Oil prices are falling faster in the current recession from their peak in July 2008. If the Fed caused the current recession and energy prices made it worse and longer, and if there were no other factors influencing it, then a quick end could be in sight, in the first or second quarter of 2009.
    Keywords: Financial crisis; recession; monetary policy; oil price shocks
    JEL: E30 E52 E44
    Date: 2008–12–19

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