nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2010‒09‒03
thirteen papers chosen by
Steve Ross
University of Connecticut

  1. How Polycentric is a Monocentric City? The Role of Agglomeration Economies By Gabriel M. Ahlfeldt; Nicolai Wendland
  2. Street Pavement: Results from an Infrastructure Experiment in Mexico By Marco Gonzalez-Navarro; Climent Quintana-Domeque
  3. Do Family Wealth Shocks Affect Fertility Choices? Evidence from the Housing Market Boom and Bust By Michael F. Lovenheim; Kevin J. Mumford
  4. How helpful are spatial effects in forecasting the growth of Chinese provinces? By Girardin , Eric; Kholodilin, Konstantin A.
  5. A private lender cooperative model for residential mortgage finance By Toni Dechario; Patricia Mosser; Joseph Tracy; James Vickery; Joshua Wright
  6. Political Costs and Fiscal Benefits: The Political Economy of Residential Property Value Assessment By Michael D. Makowsky; Shane Sanders
  7. Sensitivity Analysis of SAR Estimators: A Simulation Study By Shuangzhe Liu; Wolfgang Polasek; Richard Sellner
  8. Local Fiscal Policies and Urban Wage Structures By Patricia Beeson; Tara Watson; Lara Shore-Sheppard
  9. Modelling and Forecasting UK Mortgage Arrears and Possessions By Janine Aron; John Muellbauer
  10. How General Conditions Affect Regional Innovation Systems - The Case of the Two Germanys By Michael Fritsch; Holger Graf
  11. Finding the Influentials that Drive the Diffusion of New Technologies By Hernández-Mireles, C.
  12. The Gas Transportation Network as a ‘Lego’ Game: How to Play with It? By Jean Michel Glachant; Michelle Hallack
  13. How committed are bank lines of credit? Experiences in the subprime mortgage crisis By Rocco Huang

  1. By: Gabriel M. Ahlfeldt; Nicolai Wendland
    Abstract: Can the demise of the monocentric economy across cities during the 20th century be explained by decreasing transport costs to the city center or are other fundamental forces at work? Taking a hybrid perspec¬tive of classical bid-rent theory and a world where clustering of economic activity is driven by (knowledge) spillovers, Berlin, Germany, from 1890 to 1936 serves as a case in point. We assess the extent to which firms in an environment of decreasing transport costs and industrial transformation face a trade-off between distance to the CBD and land rents and how agglomeration economies come into play in shaping their location deci¬sions. Our results suggest that an observable flattening of the traditional distance to the CBD gradient may mask the emergence of significant agglomeration economies, especially within predominantly service-based inner city districts.
    Keywords: Transport Innovations, Land Values, Location Productivity, Agglomeration Economies, Economic History, Berlin.
    JEL: N7 N9 R33 O12
    Date: 2010–08–24
  2. By: Marco Gonzalez-Navarro (UC Berkeley); Climent Quintana-Domeque (Universitat d'Alacant)
    Abstract: Urban peripheries in many developing countries lack basic local public goods like street pavement, water, sewerage and electricity. We design an experiment of street pavement provision in a Mexican urban area and estimate impacts on a set of indicators obtained from a household survey. Our ndings show that houses in streets that were paved increased substantially in value, by 15% according to professional appraisals, and by 24% according to homeowners. Households living in streets that were paved obtained more credit, had higher per capita expenditures, increased motor vehicle ownership and were more likely to have made home improvements.
    Keywords: public infrastructure improvements, Mexico, urban infrastructure, housing value, house prices
    JEL: C01 D12 H00 H54 R21
    Date: 2010–07
  3. By: Michael F. Lovenheim; Kevin J. Mumford
    Abstract: While there is a great deal of literature focusing on the relationship between income and fertility, little is known about how wealth affects fertility decisions of the household. This paper fills this gap in the literature by investigating how changes in housing wealth affect fertility. In particular, we use the wealth variation supplied by the recent housing boom and bust to generate exogenous variation in household wealth. We first conduct a state-level aggregate analysis to investigate how the birth rate is related to housing prices using differences in the timing and size of the housing market boom and bust across different states over time. We then conduct an analysis using restricted-use data from the Panel Study of Income Dynamics that allows us to track how women’s fertility behavior is related to individual-level housing price growth. The demographic and geographic controls in the PSID allow us to control extensively for any confounding effects driven by household selection across different cities or neighborhoods, and we find that for homeowners, a $10,000 increase in real housing wealth causes a 0.07 percent increase in fertility. We find little effects of MSA-level housing price growth on the fertility of renters, which supports our identification strategy. That increases in housing wealth are strongly associated with increases in fertility is consistent with some recent work showing a positive income effect on births, and our estimates are suggestive that the large recent variation in the housing market could have sizeable demographic effects that are driven by the positive effect of housing wealth on fertility.
    Date: 2010–01
  4. By: Girardin , Eric (BOFIT); Kholodilin, Konstantin A. (BOFIT)
    Abstract: In this paper, we make multi-step forecasts of the annual growth rates of the real Gross Regional Product (GRP) for each of the 31 Chinese provinces simultaneously. Beside the usual panel data models, we use panel models that explicitly account for spatial dependence between the GRP growth rates. In addition, the possibility of spatial effects being different for different groups of provinces (Interior and Coast) is allowed for. We find that both pooling and accounting for spatial effects helps substantially improve the forecast performance compared to the benchmark models estimated for each of the provinces separately. It is also shown that the effect of accounting for spatial dependence is even more pronounced at longer forecasting horizons (the forecast accuracy gain as measured by the root mean squared forecast error is about 8% at the 1-year horizon and exceeds 25% at the 13- and 14-year horizon).
    Keywords: Chinese provinces; forecasting; dynamic panel model; spatial autocorrelation; group-specific spatial dependence
    JEL: C21 C23 C53
    Date: 2010–08–23
  5. By: Toni Dechario; Patricia Mosser; Joseph Tracy; James Vickery; Joshua Wright
    Abstract: We describe a set of six design principles for the reorganization of the U.S. housing finance system and apply them to one model for replacing Fannie Mae and Freddie Mac that has so far received frequent mention but little sustained analysis – the lender cooperative utility. We discuss the pros and cons of such a model and propose a method for organizing participation in a mutual loss pool and an explicit, priced government insurance mechanism. We also discuss how these principles and this model are consistent with preserving the “to-be-announced,” or TBA, market – particularly if the fixed-rate mortgage remains a focus of public policy.
    Keywords: Government-sponsored enterprises ; Housing - Finance ; Mortgages ; Insurance, Government
    Date: 2010
  6. By: Michael D. Makowsky (Department of Economics, Towson University); Shane Sanders (Department of Economics, Nicholls State University)
    Abstract: In many American states and municipalities, property taxes are the primary means of raising government revenues. Unlike sales or income taxes, however, property taxes have a significant element of subjectivity - the assessed value of the property being taxed. Given this subjectivity, there exists the possibility of political and fiscal incentives entering into property value assessment. We examine the determinants of assessed property value growth in a panel of 351 Massachusetts municipalities from 1995 to 2009. We hypothesize that the year to year growth of assessed value is in part determined by the municipality’s fiscal condition, the availability of alternative revenue sources, and whether the municipality’s property assessor is directly elected or appointed by an elected official. We find evidence that elected assessors respond to both the fiscal benefits and political costs of increasing their assessment of property values. Appraisals grow faster in towns with appointed assessors and respond to temporary raises in the cap on tax revenues with increases in appraisal growth.
    Keywords: Property Taxes, Local Public Finance, Property Appraisal.
    JEL: H71 D70
    Date: 2010–08
  7. By: Shuangzhe Liu (University of Canberra, Australia); Wolfgang Polasek (Institute for Advanced Studies (IHS), Austria; The Rimini Centre for Economic Analysis (RCEA), Italy); Richard Sellner (Institute for Advanced Studies (IHS), Austria)
    Abstract: Spatial autoregressive models come with a variety of estimators and it is interesting and useful to compare the estimators by location and covariance properties. In this paper, we first study the local sensitivity behavior of the main least squares estimator by using matrix derivatives. We then calculate the Taylor approximation of the least squares estimator in the SAR model up to the second order. Also, we compare the estimators of the spatial autoregression (SAR) model in terms of the covariance structure of the least squares estimators and we make efficiency comparisons using Kantorovich inequalities. Finally, we demonstrate our approach by an example for GDP and employment in 239 European NUTS2 regions. We find a quite good approximation behavior of the SAR estimator in the neighborhood of ρ = 0, i.e. a small spatial correlation.
    Keywords: Spatial autoregressive models, least-squares estimators, Taylor approximations, Kantorovich inequality
    Date: 2010–01
  8. By: Patricia Beeson (University of Pittsburgh); Tara Watson (Williams College); Lara Shore-Sheppard (Williams College)
    Abstract: It has long been recognized that average wages vary strikingly across regions and urban areas, in part due to differences in local amenities and fiscal policies. However, analogous differences in wage dispersion remain relatively unexplored. We develop a model suggesting that, after accounting for individual characteristics, wage dispersion across income groups should reflect differences in the relative valuation of local amenities and fiscal policies. We empirically investigate whether there is a link between local taxes and expenditures and the degree of dispersion in the wage structure, and find evidence that such a relationship exists.
    Keywords: inequality, wage distributions, local expenditures, local taxes
    JEL: H7 J31
    Date: 2010–04
  9. By: Janine Aron; John Muellbauer
    Abstract: This paper presents new models for aggregate UK data on mortgage possessions (foreclosures) and mortgage arrears (payment delinquencies). The innovations include the treatment of difficuly to observe variations in loan quality and shifts in forbearance policy by lenders, by common latent variables estimated in a system of equations for arrears and possessions, for quarterly data over 1983-2009. A second innovation is the theory-justified use of an estimate of the proportion of mortgages in negative equity, based on an average debt to equity ratio, as one of the key drivers of possessions and arrears. A third is the systematic treatment of measurement bias in the months in arrears measures. Finally, the paper does not impose a proportional long-run relationship between possessions and arrears assumed in the previous UK literature. A range of economic forecast scenarios for forecasts to 2013 reveals the sensitivity of mortgage possessions and arrears to different economic conditions, highlighting potential risks faced by the UK and its mortgage lenders. A comprehensive review of data on arrears and possessions completes the paper.
    Keywords: Foreclosures, Mortgage possessions, Mortgage payment delinquencies, Mortgage arrears, UK mortgage market, Defaults, Unobserved components model
    JEL: G21 G28 R21 C51 C53 E27
    Date: 2010
  10. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Holger Graf (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: We compare two leading regional innovation systems (RIS) in East Germany with two RIS in West Germany of about the same size and internal settlement structure. Our analyses show that differences in the performance between the regions cannot easily be related to the structural properties of the respective innovation networks because divergent general economic conditions in the two parts of the country as well as the integration of regions into their neighboring spatial environment play a rather dominant role. Overall, our analysis clearly shows that an analysis of RIS should account for the general economic conditions as well as for the position of a region in its spatial environment. Focusing just on the respective region is not enough.
    Keywords: Regional innovation systems, national innovation systems, innovator networks, gatekeeper, social network analysis
    JEL: O31 Z13 R11
    Date: 2010–08–24
  11. By: Hernández-Mireles, C.
    Abstract: In this article we put forward a model where aggregate sales are a function of the online search of potential consumers at many locations. We argue that a location may be influential because of its power to drive aggregate sales and this power may be dynamic and evolving in time. Second, the influential locations may produce spillover effects over their neighbors and hence we may observe clusters of influence. We apply Bayesian Variable Selection (BVS) techniques and we use Multivariate Conditional Autoregressive Models (MCAR) to identify influentials locations and their clustering. Our results indicate that the influential locations and their economic value (measured by search elasticities) vary over time. Moreover, we find significant geographical clusters of influential locations and the clusters composition varies during the life-cycle of the consoles. Finally, we find weak evidence that demographics explain the probability of a location to be influential.
    Keywords: diffusion;new products;variable selection;spatial modeling
    Date: 2010–05–31
  12. By: Jean Michel Glachant; Michelle Hallack
    Abstract: Gas transportation networks exhibit a quite substantial variety of technical and economical properties ranges roughly from an entrenched natural monopoly to near to an open competition platform. This empirical fact is widely known and accepted. However the corresponding frame of network analysis is lacking or quite fuzzy. As an infrastructure, can a gas network evolve or not from a natural monopoly (an essential facility) to an open infrastructure (a “highway” facility)? How can it be done with the same transportation infrastructure components within the same physical gas laws? Our paper provides a unified analytical frame for all types of gas transportation networks. It shows that gas transport networks are made of several components which can be combined in different ways. This very “lego property” of gas networks permits different designs with different economic properties while a certain infrastructural base and set of gas laws is common to all transportation networks. Therefore the notion of “gas transportation network” as a general and abstract concept does not have robust economic properties. The variety and modularity of gas networks come from the diversity of components, the variety of components combinations and the historical inclusion of components in the network. First, a gas network can combine different types of network components (primary or secondary ones). Second, the same components can be combined in different ways (notably regarding actual connections and flow paths). Third, as a capital-intensive infrastructure combining various specific assets, gas transportation networks show strong “path dependency” properties as they evolve slowly over time by moving from an already existing base. The heterogeneity of gas networks as sets of components comes firstly from the heterogeneity of the network components themselves, secondly from the different possibilities to combine these components and thirdly from the ‘path dependence’ character of gas network constructions. These three characteristics of gas networks explain the diversity of economic proprieties of the existent gas networks going from natural monopoly to competitive markets.
    Keywords: gas transport networks, regulatory economics, network regulation
    JEL: L5 L29 D42 D61 D6
    Date: 2010–05–13
  13. By: Rocco Huang
    Abstract: Using the subprime mortgage crisis as a shock, this paper shows that commercial borrowers served by more distressed banks (as measured by recent bank stock returns or the nonperforming loan ratio) took down fewer funds from precommitted, formal lines of credit. The credit constraints affected mainly smaller, riskier (by internal loan ratings), and shorter-relationship borrowers, and depended also on the lenders' size, liquidity condition, capitalization position, and core deposit funding. The evidence suggests that credit lines provided only contingent and partial insurance during the crisis since bank conditions appeared to influence credit line utilization in the short term. It provides a new explanation as to why credit lines are not perfect substitutes for cash holdings for some (e.g. small) firms. Finally, loan level analyses show that more distressed banks charged higher credit spreads on newly negotiated loans but not on funds disbursed from precommitted, formal credit lines. The author's analyses are based on commercial loan flow data from the confidential Survey of Terms of Business Lending (STBL).
    Keywords: Commercial credit ; Global financial crisis
    Date: 2010

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