Graduate Urban Economics Course Outline

Urban Economics (Spring 1996)

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Course Outline

This course will treat the set of topics typically covered in a graduate urban economics course. More emphasis is on theory, though there will be some discussion of related econometric and policy work. Because of the time constraint, I cannot cover all materials in the following reading list, but students are urged to read references in omitted topics.

The requirements for the course are a term paper (50%) and homework problems (50%). Solid understanding of microeconomic theory (at the level of Varian's textbook) and econometrics (at the level of Maddala's textbook) is a prerequisite for the course.

References with asterisks are required readings.

Textbooks on Urban Economics

Henderson, J.V., Economic Theory and the Cities, (2nd Edition), Academic Press, (1985). (A standard graduate textbook.)

Kanemoto, Y., Theories of Urban Externalities, North-Holland, (1980).

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Mills, E. S. and B.W. Hamilton, Urban Economics, (4th Edition), Scott, Foresman and Company, (1989). (A standard undergraduate textbook. If you have not read this book yet, you should do so in a hurry.)

Fujita, M., Urban Economics Theory, Cambridge University Press, (1989), (An up-to-date survey of technical aspects of urban land use theory.)

Books on Some Particular Fields in Urban Economics

Beckmann, M.J., Location Theory, Random House, (1968). (An old book, but still the best one in location theory.)

Wildasin, D. E., Urban Public Finance, Fundamentals of Pure and Applied Economics 10, Harwood Academic Publishers: Chur, Switzerland, (1986).

Small, K. A., Urban Transportation Economics, Harwood, (1992). (A good survey of recent research on transportation economics with special emphasis on the empirical side.)

Miles, D., Housing, Financial Markets and the Wider Economy, Wiley, (1994). (A book on housing economics with special emphasis on the financial side.)

1. Theory of Residential Land Use

The Standard Monocentric City Model:

Mills, E.S. and B.W. Hamilton, Urban Economics, Chs.5-7.

Alonso, W., Location and Land Use, Chs.1-4. (A classic book in urban economics.)

*Kanemoto, Y., Theories of Urban Externalities, Ch.1.

Solow, R.M., "On the Equilibrium Models of Urban Location," in Essays in Modern Economics, Ed. by M.

Parkin, (1973). (An elegant exposition of the basic theoretical structure of the residential land use theory.)

Fujita, M., "Urban Land Use Theory," in Location Theory (Fundamentals of Pure and Applied Economics, Vol.5), (1986), 73-149, Section 1. (A good survey article.)

Comparative Statics:

*Wheaton, W.C., "A Comparative Static Analysis of Urban Spatial Structure," JET (1974), 223-237.

Hartwick, J., Schweizer, U., and Varaiya, P., "Comparative Statics of a Residential Economy with Several Classes," JET (1976), 396-413. (An extension of Wheaton's results to more than two classes of households.)

Dynamic Stability:

Miyao, T., Dynamic Analysis of the Urban Economy, Academic Press, (1981), Chapters 2, 4. (A dynamic stability analysis.)

2. Durable Housing - Development Timing

Bentick, B.L., (1979), "The Impact of Taxation and Valuation Practices on the Timing and Efficiency of Land Use," Journal of Political Economy 87, 859-868.

Skouras, A., (1978), "The Non-Neutrality of Land Taxation," Public Finance 33, 113-134.

Wildasin, D., (1982), "More on the Neutrality of Land Taxation," National Tax Journal 35, 105-111.

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3. Durable Housing - Endogenous Maintenance

A Commodity Hierarchy Model:

*Sweeney, J., "A Commodity Hierarchy Model of the Rental Housing Market," JUE 1, (1974), 288-323. (Durability + Heterogeneity. Skim.)

Sweeney, J., "Quality, Commodity Hierarchies, and Housing Markets," Econometrica, (1974), 147-167.

Ohls, J., "Public Policy Towards Low Income Housing and Filtering in Housing Markets," JUE (1975).

Maintenance:

*Sweeney, J., "Housing Unit Maintenance and the Mode of Tenure," JET 8, (1974), 111-138. (Difference in maintenance between owning and renting. Relies solely on difference in turnover caused by difference in transaction costs. Skim.)

*Arnott, R., R. Davidson, and D. Pines, "Housing Quality, Maintenance, and Rehabilitation," RES 50 (1983), 467-494. (Analysis of demolition and maintenance decisions. Skim.)

Comparative Statics with Durable Housing:

Braid, R., "The Short-Run Comparative Static of a Rental Housing Market," JUE (1981).

4. Name Durable Housing - Investment and Demolition

Anas, A., "Dynamics of Urban Residential Growth," JUE (1978).

Arnott, R., and F. Lewis, "The Transition of Land to Urban Use," Journal of Political Economy,

*Wheaton, W., "Urban Residential Growth under Perfect Foresight," JUE 12, (1982), 1-21.

Fujita, M., "Spatial Patterns of Residential Development," JUE 12, (1982), 22-53.

Wheaton, W., "Urban Spatial Development with Durable but Replaceable Capital," JUE 12, (1982), 53-67.

Brueckner, J., "A Dynamic Model of Housing Production," JUE 10, (1981), 1-14.

*Fujita, M., "Urban Land Use Theory," in Location Theory (Fundamentals of Pure and Applied Economics, Vol.5), (1986), 73-149, Section 4. (Brief summary of the literature.)

*Fujita, M. and M. Kashiwadani, "Testing the Efficiency of Urban Spatial Growth: A Case Study of Tokyo," JUE 25, (1989), 156-192. (An application to Tokyo area. Skim.)

Pines, D. and O. Hochman, "Costs of Adjustment and the Spatial Pattern of a Growing Open City," Econometrica 50, (1982), 1371-92.

Henderson, J.V., Economic Theory and the Cities, Ch.4.

5. Spatial Interactions and Non-monocentric Cities

*Kanemoto, Y., "Externalities in Space," in Urban Dynamics and Urban Externalities (Fundamentals of Pure and Applied Economics, Vol.11), (1987), 43-103, Section 4. (A short survey.)

Fujita, M., "Urban Land Use Theory," in Location Theory (Fundamentals of Pure and Applied Economics, Vol.5), (1986), 73-149, Section 3. (A short survey.)

Ohara, J. D., "Location of Firms within a Square Central Business District," JPE (1977). (A square city. CBD only.)

*Ogawa, H. and Fujita M., "Equilibrium Land Use Patterns in a Non-monocentric city," Journal of Regional Science 20, (1980), 455-475. (Business and residential sectors. Market equilibrium.)

Imai, H., "CBD Hypothesis and Economies of Agglomeration," Journal of Economic Theory 29, (1982), 275-299. (The optimal configuration in the same model as the Ogawa-Fujita model.)

Fujita, M. and Ogawa, H., "Multiple Equilibria and Structural Transition of Non-monocentric Urban Configurations," Regional Science and Urban Economics 12, (1982), 161-196. (The negative exponential spatial externality function.)

*Kanemoto, Y., "Optimal Cities with Indivisibility in Production and Interactions between Firms," Journal of Urban Economics 27, (1990), 46-59. (Locational externality created by scale economy in production. The determination of city size.)

Schulz, N. and K. Stahl, "Oligopolistic Industry Location and Local Labor Markets," Working Papers in Economic Theory and Urban Economics No.8306, University of Dortmund, (1983). (An oligopolistic model of spatial interaction.)

6.Name Economics of Agglomeration

Krugman, P., "Increasing Returns and Economic Geography," JPE 99, 483-499, (1991).

Fujita, M. and J. Thisse, "Economics of Agglomeration," forthcoming in the Journal of the Japanese and International Economies, (1996). (A survey of recent literature on agglomeration.)

Matsuyama, K., "Complementarities and Cumulative Process in Models of Monopolistic Competition," JEL 33, 701-729, (1995).

Eaton, C. and Lipsey, R., "An Economic Theory of Central Places," EJ 92, (1982), 56-72. (Formation of retail store agglomeration due to multiple purpose shopping.)

Wolinsky, A., "Retail Trade Concentration due to Consumers' Imperfect Information," Bell Journal of Economics 14 (1983), 275-282.

7. City Sizes

General References:

*Kanemoto, Y., Theories of Urban Externalities, Chapter 2.

*Kanemoto, Y., "Externalities in Space," in Urban Dynamics and Urban Externalities (Fundamentals of Pure and Applied Economics, Vol.11), (1987), 43-103, Section 4.

Henderson, J.V., Economic Theory and the Cities, Chapters 3 & 4.

Henderson, J.V., "The Sizes and Types of Cities," AER (1974).

Arnott, R., "Optimal City Size in a Spatial Economy," JUE 6, (1979), 65-89.

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$B6bK\NI;L!V$N8z2L!W!XEl5~0l6K=8Cf$N7P:QJ,@O!Y!JH,EDC#IWJT!KBh#8>O!$F|K\7P:Q?7J9 Kanemoto, Y., T. Ohkawara, and T. Suzuki, "Agglomeration Economies and a Test for Optimal City Sizes in Japan," forthcoming in the Journal of the Japanese and International Economies, (1996). (An empirical test for the optimality of city size.)

Factory Towns:

Serck-Hansen, J., "The Optimal Number of Factories in a Spatial Market," in Towards Balanced International Growth, Ed. by H. Bos, (1968). (Perhaps the first paper to derive the Henry George Theorem.)

Mirrlees, J. A., "The Optimum Town," Swedish Journal of Economics 74, (1972), 114-135. (An elegant analysis of a monocentric city model.)

Starret, D. A., "Principles of Optimal Location in a Large Homogeneous Area," JET 9, (1974), 418-448.

Vickrey, W., "The City as a Firm," in The Economics of Public Services, Ed. by M. S. Feldstein and R. P. Inman. (A verbal explanation of the Land Developer Theorem.) Public Good and Aggregate Land Rent:

*Arnott, R. and Stiglitz, J., "Aggregate Land Rents, Expenditure on Public Goods and Optimal City Size," Quarterly Journal of Economics 63, (1979), 471-500.

A System of Cities:

Henderson, J.V., "Systems of Cities in Closed and Open Economies," RSUE 12, (1982), 325-350. (Comparative advantage and the system of cities.)

8. Empirical Studies on the Housing Market: Homogeneous Housing

Intraurban Migration:

*Quigley, J. and Weinberg, D., "Intraurban Residential Mobility: A Review and Synthesis," International Regional Science Review 2, (1977), 41-66.

Supply:

*McDonald, J.F., "Capital-Land Substitution in Urban Housing: A Survey of Empirical Estimates," Journal of Urban Economics 9, (1981), 190-211.

Demand:

*Mayo, S., "Theory and Estimation in the Economics of Housing Demand," Journal of Urban Economics 10, (1981), 95-116.

*Polinsky, A.M., "The Demand for Housing: A Study in Specification and Grouping," Econometrica 45, (1977), 447-461.

*Ellwood, D. and A.M. Polinsky, "An Empirical Reconciliation of Micro and Grouped Estimates of the Demand for Housing," Review of Economics and Statistics (1979), 199-205.

Freedman, J. and Weinberg, D., "The Demand for Rental Housing: Evidence from the Housing Allowance Demand Experiment," Journal of Urban Economics 9, (1981), 311-332.

Tenure Choice:

Rosen, H. S., "Housing Decisions and the U. S. Income Tax," JPubE 11, (1979), 1-23.

King, M., "An Econometric Model of Tenure Choice and Demand for Housing as a Joint Decision," Journal of Public Economics 14, (1980), 137-159.

*Rosen, H. S. and Rosen K.T., "Federal Taxes and Homeownership: Evidence from Time Series," JPE (1980).

Rosen, H. S., Rosen, K.T. and Holz-Eakin D., "Housing Tenure, Uncertainty, and Taxation," Review of Economics and Statistics, (1984), 405-416.

9. Urban Transportation

Small, K. A., Urban Transportation Economics, Harwood, (1992).

Small, K. A. and J. A. Gomez-Ibanez, "Urban Transportation," forthcoming in Handbook of Regional and Urban Economics, ed. By P. Cheshire and E. S. Mills, North-Holland.

Congestion Pricing and Investment:

*Mills, E. S. and B.W. Hamilton, Urban Economics, (1984), Ch.12.

Mohring, H., Transportation Economics, Ballinger: Cambridge, Mass., (1976), Ch.3 plus its appendix. Cost-Benefit Analysis

Mohring, H., Transportation Economics, Ballinger: Cambridge, Mass., (1976), Ch.8

Kanemoto, Y. and Mera, K., "General Equilibrium Analysis of the Benefits of Large Transportation Improvements," Regional Science and Urban Economics 15, 343-363, (1985).

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Second-Best Pricing and Investment

*Henderson, J.V., Economic Theory and the Cities, (1985), Chapters 7 & 8.

*Kanemoto, Y., "Externalities in Space," (1987), Section 5.

*Wheaton, W.C., "Price-Induced Distortions in Urban Highway Investment," Bell Journal of Economics 9, (1978), 622-632.

Vickrey, W. S., "Pricing in Urban and Suburban Transportation," AER 53, (1963), 452-465.

Vickrey, W. S., "Congestion Theory and Transport Investment," AER 59, (1969), 251-260.

Walters, A. A., "The Theory and Measurement of Private and Social Cost of Highway Congestion," Econometrica 29, (1961), 676-699.

Land Use for Transportation

Strotz, R., "Urban Transportation Parables," in J. Margolis, ed., The Public Economy of Urban Communities, Resources for the Future: Washington, D. C., (1965), 127-169.

Kanemoto, Y., Theories of Urban Externalities, Chapters 4 & 5.

Pines, D. and Sadka, E., "Optimum, Second-Best, and Market Allocations of Resources within an Urban Area," Journal of Urban Economics 9, (1981), 173-189.

Arnott, R.J., "Unpriced Transport Congestion," Journal of Economic Theory 21, (1979), 294-316.

Wilson, J., "Optimal Road Capacity in the Presence of Unpriced Congestion," Journal of Urban Economics 13, (1983), 337-357.

Kanemoto, Y., "Pricing and Investment Policies in the System of Competitive Commuter Railways," Review of Economic Studies 51, 665-681, (1984).

Transportation Technology and Demand:

Institute of Traffic Engineers, Transportation and Traffic Engineering Handbook, Prentice Hall: Englewood Cliffs, NJ, (1977).

Anas, A., Residential Location Markets and Urban Transportation, Academic Press: New York, (1982). MacFadden, D., "The Measurement of Urban Travel Demand," Journal of Public Economics 3, (1974), 303-328.

Meyer, J., Kain, J., and Wohl, M., The Urban Transportation Problems, Harvard University Press: Cambridge, Mass., (1965), Chapters 9-11 plus appendices.

Keeler, T.E. and Small, K. A., "Optimal Peak-Load Pricing, Investment, and Service Levels on Urban Expressways," JPE 85, (1977), 1-25.

Regulation of Urban Transportation Services

Kanemoto, Y. and K. Kiyono, "Regulation of Commuter Railways and Spatial Development," Regional Science and Urban Economics, 377-394, (1995).

Kanemoto, Y. and K. Kiyono, "Investment, Pricing, and Regulation in Urban Transportation and Spatial Development," in H. Kohno and P. Nijkamp (eds.) Potentials and Bottlenecks of Spatial Economics Development, 30-44, Springer-Verlag, (1993).

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10. Local Public Goods

*Wildasin, D. E., Urban Public Finance, Fundamentals of Pure and Applied Economics 10, Harwood Academic Publishers: Chur, Switzerland, (1986).

*Tiebout, C. M., "A Pure Theory of Local Expenditures," Journal of Political Economy 64, (1956), 416-424.

Stiglitz, J., "The Theory of Local Public Goods Twenty-Five Years After Tiebout: A Perspective," NBER Working Paper No.954.

*Arnott, R.J. and Stiglitz, J.E., "Aggregate Land Rents, Expenditures on Public Goods and Optimal City Size," QJE 63, (1979), 471-500.

Atkinson, A. B. and Stiglitz, J.E., Lectures in Public Economics, McGraw Hill: New York, (1980), Chapters 16 & 17.

*Berglas, E. and Pines, D., "Clubs, Local Public Goods, and Transportation Models: A Synthesis," Journal of Public Economics 65, (1981), 141-162.

Flatters, F., Henderson, J.V., and Mieszkowski, P., "Public Goods, Efficiency, and Regional Fiscal Equalization," Journal of Public Economics 3, (1974), 99-112.

Kanemoto, Y., Theories of Urban Externalities, Chapter 3.

Henderson, J.V., "Population Composition of Cities: Restructuring the Tiebout Model," Journal of Public Economics 27, (1985), 131-156.

11. Taxation

Property Taxes

Mieszkowski, P., "The Property Tax: An Excise or Profit Tax," Journal of Public Economics (1972).

*Henderson, J.V., Economic Theory and the Cities, Chapter 9.

Grieson, R. E., "The Economics of Property Taxes and Land Values: The Elasticity of Supply of Structures," JUE (1974).

Henderson, J.V., "Property Tax Incidence with a Public Sector," JPE 93, (1985), 648-665.

Hamilton, B.W. and Whalley, J., "Tax Treatment of Housing in a Dynamic Sequenced General Equilibrium Model," Journal of Public Economics 27, (1985), 157-175.

Bentick, B. L., "The Impact of Taxation and Valuation Practices on the Timing and Efficiency of Land Use," Journal of Political Economy 87, (1979), 859-874.

Capital Gains Tax

Kanemoto, Y., "Housing as an Asset and the Effects of Property Taxation on the Residential Development Process," Journal of Urban Economics 17, (1985), 145-166.

Sinn, H-W., "Vacant Land and the Role of Government Intervention," Regional Science and Urban Economics 16, (1986), 353-385.

Kanemoto, Y., (1995), "On the 'Lock-In' Effects of Capital Gains Taxation," Journal of Urban Economics, forthcoming.

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12. Externalities and Zoning

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Externality Zoning:

*Henderson, J.V., "Externalities in a Spatial Context: The Case for Air Pollution," Journal of Public Economics 77, (1977), 89-110.

Henderson, J.V.,(1985), Economic Theory and Cities, 2nd Edition, Academic Press. Chapters 3 and .5.

*Kanemoto, Y., "Externalities in Space," Sections 2 & 3.

Stull, W.J., "Land Use and Zoning in an Urban Economy," AER (1974).

Bailey, M.J., "Note on the Economics of Residential Zoning and Urban Renewal," Land Economics, (1959).

Fiscal Zoning:

Ohls, J.C., Weisberg, R.C., and White, M.J., "The Effect of Zoning on Land Values," JUE (1974).

Courant, P.N., "On the Effect of Fiscal Zoning on Land and Housing Values," JUE (1977).

Frankena, M. and Scheffman, D., "A Theory of Development Controls in a 'Small' City," Journal of Public Economics 15, (1981), 203-234.

Mills E.S. and Oates, W., (eds.), Fiscal Zoning and Land Use Controls, Heath-Lexington, (1975).

13. The Hedonic Approach

*Rosen, S., "Hedonic Prices and Implicit Markets," JPE (1974).

Wheaton, W. A., "A Bid Rent Approach to Housing Demand," JUE (1977).

*Wheaton, W. A., "Income and Urban Residence: An Analysis of Consumer Demand for Location," AER (1977).

Brown, J.N. and Rosen, H.S., "On the Estimation of Structural Hedonic Price Models," Econometrica (1982).

*Quigley, J.M., "Nonlinear Budget Constraints and Consumer Demand: An Application to Public Programs for Residential Housing," JUE 12, (1982).

Lerman, S. R. and Kern, C.R., "Hedonic Theory, Bid Rents, and Willingness-to-Pay: Some Extensions of Ellickson's Results," JUE 13, (1983).

*Kanemoto, Y. and Nakamura, R., "A New Approach to the Estimation of Structural Equations in Hedonic Models," JUE 19, (1986), 218-233.

Epple, D., "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," JPE 95, (1987), 59-79.

Mendelsohn, R., "Identifying Structural Equations with Single Market Data," REStat (1985).

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14. Measuring the Benefits and Costs of Urban Externalities

*Kanemoto, Y., "Externalities in Space," Section 6.

*Ridker, R.G. and Henning J. A., "The Determinants of Residential Property Values with Special Reference to Air Pollution," Review of Economics and Statistics 49, (1969), 246-257.

Polinsky, A. and Shavell, S., "Amenities and Property Values in a Model of an Urban Area," Journal of Public Economics 5, (1976), 119-129.

Chappie, M. and Lave, L., "The Health Effects of Air Pollution: A Reanalysis," Journal of Urban Economics 12, (1982), 346-376.

Blomquist, G. and Worley, L., "Hedonic Prices, Demands for Urban Housing, Amenities, and Benefit Estimates," Journal of Urban Economics 9, (1981), 212-221.

Grether, D. and Mieszkowski, P., "The Effects of Non-residential Land Uses on the Price of Adjacent Housing: Some Estimates of Proximity Effects," JUE 8, (1980), 1-15.

*Kanemoto, Y., "Hedonic Prices and the Benefits of Public Projects," Econometrica 56, (1988), 981-989.

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15. The Contract Theory and the Housing Market

Tenure Choice

Henderson, J.V. and Y.M. Ioannides, "A Model of Housing$B!!(BTenure Choice," American Economic Review 73, (1983), 98-113.

Kanemoto, Y., "Contract Types in the Property Market," Regional Science and Urban Economics 20, 5-22, (1990).

Wolfson, M. A., "Tax, Incentive, and Risk-sharing Issues in the Allocation of Property Rights: The Generalized Lease-or-Buy Problem," Journal of Business 58, (1985), 159-171.

Smith, C.W. and L. McDonald Wakeman, "Determinants of Corporate Leasing Policy," Journal of Finance 40, (1985), 895-908.

Project Financing and Securitization in the U.S.

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