Cities and Regions Flashcards
What is the exogenous motive for concentration of population/activity?
Natural Advantage.
‘Exogenous amenities or disamenities’
What are the two type of amenities (natural advantages)
- Exogenous Productive amenities: features of a geographic location that make economic activity more attractive
- Exogenous Consumption amenities: features of a geographic location that make it intrinsically more attractive (beautiful views…)
What is the endogenous motive for concentration of population/activity?
Increasing returns in production and consumption. Concentration itself can be a source of increasing returns
What is the model of a simple backyard economy?
2 assumptions: equal productivity and attractiveness across space and constant returns to scale in production and consumption. It guarantees the absence of cities.
Historically, what three conditions have needed to be satisfied for the emergence of cities?
- agricultural surplus
- urban production
- transportation for exchange
What are the assumptions of the enlarged backyard model?
-Equal productivity and attractiveness across space
- Constant returns to scale in exchange
- Constant returns to scale in production
These will guarantee there are no cities
What two types of cities emerged in the industrial revolution?
-Factory cities: emerges around one more market oriented firms, a firm which faces minimal transportation costs for its inputs but high trans. costs for its output.
- Processing cities: emerge around one or more resource oriented firms. Firms which face negligible transportation costs for output but high for inputs.
What kind of cities emerged in the second half of the twentieth century
- Service and Innovation cities: facilitate knowledge spillovers which make innovations productive
In which two way can increasing returns to scale be classified?
Within the boundary of a firm
Outside the boundaries of a firm (agglomeration economies)
What are the three concentration froces?
- Natural advantage (exogenous amenities)
- Increasing returns within the firm
- Agglomeration Economies
What are the two types of agglomeration economies?
Localisation economies: forces acting on firms/workers all in the same industry
Urbanisation economies: crosses industry boundaries
What is the worker indifference condition in the RR Model? What is the price of a house?
U(worker) = wage - cost of housing + local amenity = reservation utility
Price house = construction cost + land cost
What are the predictions/implication of the equilibrium in the RR model
- Real wages are equalised across cities if amenities are negligible (bigger cities will have more expensive housing but higher nominal wages)
-Any difference in real wages between two cities reflects a difference in net amenities - A very productive city is either big or expensive or both
What are the problems with the predictions of real wages being equalised?
- Inequality measures can be very misleading
- Housing affordability measures can be misleading
What is a more subtle explanation for the existence of specialised and diversified cities?
The two cities may be complements in production. Think of experimentation stage ( diversified ‘laboratory’ cities) and mass production stage (specialised production cities)
What effect does the size of tradable sector have on city size?
Larger size of tradable sector (number of workers) may result in a higher multiplier (each non-tradable sector job will sustain a greater number of jobs in tradable sectors). This leads to bigger cities.
What the main limitation of the RR model?
It abstracts from agent heterogeneity. If heterogeneity is present then the condition for spatial equilibrium will change. For example we could interpret difference in wages as differences in amenities, but they may simply reflect differences in worker productivity.
What is the rank-size rule?
Rank x Population is constant across cities.
e.g. if the biggest city has a population of 24 million, the second biggest has a population of 12 millions (24x1 = 12x2)
How can the city size distribution be explained (rank-size rule)
Central place theory. The model shows how location patterns of different sectors combine to form a regional system of cities, with many small cities and few large cities. (Think of Pizza, Books and Jewellery examples)
What are the main take aways of the central place theory?
- Diversity and scale economies: scale economies relative to per capita demand
- Large means few: small number stores sell the goods subject to relatively large economies of scale so few cities can be large
- Shopping paths: consumers travel from small to big cities
What are the main urban growth stylised facts?
-Population/employment growth rates are persistent in the SR
- Population growth rates are independent of initial levels(Gibrat’s Law)
- Convergence in median income across cities (poorer places have faster income growth)
- Positive correlation of population growth and initial income
What are the post-war urban stylised facts?
- Exposure to manufacturing predicts urban decline
- Education predicts income and population growth at the city level
- small firm size predicts income and population growth at the city level
- good weather predicts income and population growth
-population and income co-move at the city level
Is Urban growth easy to measure? How can it be measured?
Urban growth is quite hard to measure. Ideally population growth, income growth and rent growth should be looked at together. With only partial data, population growth is probably the single best measure (it is a summary statistic).
What do changes in city size primarily reflect?
- Changes in productivity/productive amenities
- Changes in consumption amenities
- Changes in housing supply
What is the slope of the urban labour demand explained by?
- Substitution effect: high wages mean that firms substitute labour with other factors
- Output effect: high wages => high output cost=> low quantity of output demand => lower employment
- Agglomeration effect: high wages => lower employment => lower productivity => even lower employment (the strong the effect the flatter the line)
What effect does adding the non-tradable sector have?
Amplifies the magnitude of labor demand shifts in response to shocks affecting the tradable sector.
What effect does factor mobility have on the incidence of shocks?
If people are mobile the effect of a local shock dissipate through space, if people are immobile the effects of the shocks stay local.
Thus, the presence of immobile people is the best justification to try help places.
What impact does the durability of housing have on the effect of positive and negative shocks?
Housing being durable means that in positive shocks we tend to build more housing but we do not tend to instantly destroy housing during negative shocks => housing supply is downwardly inelastic. This means that the effects of positive and negative cities are likely to be asymmetric.
What are the two reasons why density of the city increases as we approach the CBD?
- Factor Substitution: as land prices are higher closer to the city center, developers will build more housing per unit of land
- Consumer Substitution: as housing is more expensive near the CBD consumers react and economise on housing => more people per unit of housing.
What are the reasons why the Rich live in the suburbs?
- The want to consume more housing ( income elasticity of housing demand is greater than income elasticity of commuting costs => The Rich have a less steep bid rent curve)
- They have access to better transportation technologies
What are the main reasons for the emergence of mono centric cities?
- Economies of scale in the center
- Intra-City transportation innovations
- Improvements in construction technology
What are the main reasons for the demise of the mono-centric city?
- Decentralisation of manufacturing (trucks and highways)
- The automobile
- Decentralisation of office employment
What is meant by urban sprawl?
Urban sprawl = increasing footprint + low density + decentralisation
What are the consequences of urban sprawl?
- Energy efficiency: ambiguous
- Increased travel
- Air quality/greenhouse gases: ambiguous
- Loss of farmland but pretty minimal (no shortage)
- Mass transit development harder
- Crowding out of woodlands/natural habitats
What are the choices households face when choosing a house?
- Housing unit
- Location
- Local taxes and public goods
-Set of neighbours and associated externalities - Other amenities/disamenities
What is sorting/segregation a consequence of?
- Heterogeneity in individuals
- Heterogeneity of neighbourhoods
How does variability in taxation provide another motive for sorting across municipalities?
It provides an incentive to sort into homogenous communities
What neighbourhood externalities (social interactions) are relevant for children? For adults?
- For children:
- Interactions with successful adults
- interaction with other children - For adults:
- regular social interactions
- information about job opportunities
- crime and anti social behaviour
How can minimum lot size policies encourage segregation?
High income want to consume more land => lower premium per unit of land=> could get out bid by low income thus leading to integrations => with minimum lot size poor people can no longer outbid => rich with rich, poor with poor.
What are the positive consequences of segregation?
- Attracting specialised businesses
- positive Peer group effects
- More tailored public goods
- no ‘status anxiety’
- ## role models and norms
What are negative consequences of segregation?
- negative peer group effects
- negative role models
- spatial mismatch (although little evidence for this)
What are zoning policies? What are growth controls?
Zoning policies limit the use, density and heigh of buildings/land as well as establishing conservation areas. Growth controls set urban growth boundaries/green belts, building permits and dev. taxes.
What is housing policy?
Set of policies aimed at promoting/ensuring access to adequate housing and tackling housing affordability issues.
How effective is planning as an environmental policy?
It is effective in the sense that it puts a ‘buffer’ between residential areas and pollution. However, it doesn’t reduce pollutions per se, taxes will probably be necessary for that to happen.
What is fiscal zoning?
Zoning policies aimed at primarily ‘letting in’ households with a fiscal surplus. For example this could be done by setting minimum lot size.
What are the two ways government can provide open space?
- Provide public land in parks
- Restrict private use of land
What are the three criteria for the constitutionality of zoning in the US?
substantive due process, equal protection, just compensation.
What are the effects of precise growth control (winners and losers)?
Losers: workers/renters, landowners that own land outside the growth boundary
Winners: landowners that own land inside the growth boundary
What is the efficient way to limit urban sprawl?
Eliminate the distortions that encourage it, such as underpricing of travel and public services, subsidies for housing, exclusionary zoning.
What are the three ways increases in housing prices increase the supply of housing?
- Building new dwellings
- Increase maintenance of used buildings
- Upgrade used dwellings
What three features make housing distinct from other goods?
- Highly heterogenous
- Housing is durable and deterioration rates vary
- Moving is costly, so reactions to income or preference changes are sluggish
What effects do growth controls have in the context of the filtering model?
Households will either have to bear the relatively high cost of maintaining the quality of their dwelling or tolerate increasing mismatch between their optimal housing and the actual housing they have.
It will also lead to higher prices (lower supply, reflect increased cost of housing)
What are the problem with public housing provision?
- Inefficient (think of subsidy VS cash transfer example) (production efficiency around 0.5)
- More expensive to build than private housing, and even the least costly new housing costs more than new housing.
What are some alternatives to public housing?
Subsidies for low income housing, tax credits for constructions of low income private housing. Still, these are not much better than private housing provision in terms of effciency.
What is a demand side housing policy?
Vouchers.
What are the main disadvantages of rent control?
- Inadequate maintenance of buildings
- Reduced incentives for new construction
- Misallocation of households to dwellings
- Search costs
- Imperfect enforcement
What are the three main externalities generated by auotomobiles?
Congestion externalities
Air pollution
Motor vehicle accidents
How do congestion taxes cause urban grwoth?
- It increases utility in the city in which the tax was implemented (lower congestion), this results in a utility gap with people migrating to the city with the tax until the gap is closed.
What are some alternatives to congestion tax?
- Gasoline tax
- Subsidies for transit
- Pricing of Parking
What are the local government’s two sources of revenue?
- local taxes (mostly property taxes)
- Intergovernmental grants
What is taxation capacity?
How much can the local government tax individuals before they leave to another jurisdiction… agglomeration economies tend to increase taxation capacity.
What is the Henry George single tax?
What are the arguments for it? Against it?
He proposed to only have one tax on land (100% tax on land rent), and no other taxes as this could have covered all government expenditures.
This would have been efficient (land is inelastic so no distortion), also equitable as land rent is mainly determined by nature and society not by efforts of landowners.
Net return of land would be zero, many landowners would abandon land, land rent difficult to measure.
What are some alternatives to the Henry George Single Tax?
- Partial Land tax
- Two rate tax/split property tax
Who does the incidence of residential property tax fall on?
On the less mobile factor, therefore mostly land. There is also some tax exporting to other municipalities ( firms that export to other cities pass on some of the tax).
Why are intergovernmental grants (lump-sum grants and matching grants necessary)?
- Can be used to internalise inter-jurisdictional spillovers
- At national level tax revenue increases more rapidly with income, but at the local level desired spending on public goods might increase faster than the local tax base. Surplus can be transferred to local governments.
Why do matching grants have a greater impact than Lump-sum grants?
Because they decrease the opportunity cost of spending on the target program.
What is the flypaper effect? What explains it?
- Grant money increases loc. gov. spending much more than increases in local income. The money ‘sticks where it first hits’. It is because bureaucrats what to maximise budgets and tend to hide grant money from citizens to get them to vote for larger budgets.
What kind of labour demand curve do agglomeration economies form?
A flatter demand curve
What effect does the non-tradable sector have on labour demand shocks?
- Amplifies labour demand shocks. If more people employed in tradable, more demand for non-tradable, increased employment in non-tradable, further increase in total local labour demand. (Local Multiplier Effect).
What are the three mechanisms of agglomeration economies?
- Sharing/Pooling Mechanism
- Matching mechanism
- Learning mechanism
What is the sharing mechanism?
- Sharing indivisible goods and facilities
- Sharing the gains from variety (intermediate inputs)
- Sharing the gains from individual specialisation
- Sharing risk
How does risk sharing mechanism work?
- Firms do better in good times, worse in bad times, but overall expected profits are higher in a cluster.
