Abstract: Highly productive U.S. cities are characterized by high housing prices, low housing stock growth, and restrictive land-use regulations (e.g., San Francisco). While new residents would benefit from housing stock growth due to higher incomes or shorter commutes, existing residents justify strict local land-use regulations on the grounds of congestion and other costs of further development. This paper assesses the welfare implications of these local regulations for income, congestion, and urban sprawl within a general equilibrium model with endogenous regulation. In the model, households choose from locations that vary exogenously by productivity and endogenously according to local externalities of congestion and sharing. Existing residents address these externalities by voting for regulations that limit local housing density. In equilibrium, these regulations bind and house prices compensate for differences across locations. Relative to the planner’s optimum, the decentralized model generates spatial misallocation whereby high-productivity locations are settled at too-low densities. The model admits a straightforward calibration based on observed population density, expenditure shares on consumption and local services, and local incomes, as well as house prices and construction costs in the most expensive cities. Quantitatively, welfare and GDP would be 1.4% and 2.1% higher, respectively, under the planner’s allocation. Abolishing zoning regulations entirely would increase GDP by 6%, but lower welfare by 5.9% as the increased consumption would be outweighed by greater congestion costs. However, if the profits from development are not shared broadly, than the typical household may see an improvement in welfare from zoning abolition.
Abstract: This handbook chapter seeks to document the economic forces that led the US to become an urban nation over its two hundred year history. We show that the urban wage premium in the US was remarkably stable over the past two centuries, ranging between 15 and 40 percent, while the rent premium was more variable. The urban wage premium rose through the mid-nineteenth century as new manufacturing technologies enhanced urban productivity; then fell from 1880 to 1940 (especially through 1915) as investments in public health infrastructure improved the urban quality of life; and finally rose sharply after 1980, coinciding with the skill- (and apparently also urban-) biased technological change of the computer revolution. The second half of the chapter focuses instead on the location of workers and firms within metropolitan areas. Over the twentieth century, both households and employment have relocated from the central city to the suburban ring. The two forces emphasized in the monocentric city model, rising incomes and falling commuting costs, can explain much of this pattern, while urban crime and racial diversity also played a role.
Abstract: The durability of the real estate capital stock could hinder climate change adaptation because past construction in beautiful but increasingly risky coastal areas anchors the population. But, coastal developers anticipate that their asset also faces more risk and this creates an incentive to seek adaptation strategies ranging from; self protection, to reducing capital durability to seeking an exit option. The option value offered by short lived capital is greater if the volatility of local shocks increases over time. Climate change is likely to increase such volatility. Building on past work that has studied the consequences of persistent local labor demand declines, this paper studies how persistent local new climate risks impact the real estate investor's joint decision of locational choice, capital durability and maintenance.
Abstract: We examine the contribution to economic growth of entrepreneurial "marketplace information" within a regional endogenous growth framework. Entrepreneurs are posited to provide an input to economic growth through the information revealed by their successes and failures. We empirically identify this information source with the regional variation in establishment births and deaths, which create geographic information asymmetries that influence subsequent entrepreneurial activity and economic growth. To account for the potential endogeneity caused by forward-looking entrepreneurs, we utilize instruments based on historic mining activity. We find that local establishment birth and death rates have significant effects on subsequent entrepreneurship and employment growth for US counties and metropolitan areas.