Urban and Regional Econ Midterm

Agglomeration Economics

Benefits a firm receives from locating near other firms

Localization Economies

Benefits from being near firms in the same industry

Urbanization economies

Benefits from being in a big, diverse city, no matter your industry

3 forces of agglomeration

1. Thick labor markets

2. Ecosystems

3. Knowledge Spillovers

Basic/Export Employment

Jobs whose outputs is sold outside the region

Non Basic/Local Employment

Jobs whose output is sold to people who already live in the region

Employment Multiplier Formula

Change in total employment / Change in export employment

Metropolitan Statistical Area

Built around an urbanized area of 50,000+

people

Micropolitan Statistical Area

Built around a smaller urban cluster of

10,000 - 49,999 people

Core Based Statistical Area

(CBSA)

The umbrella term for both micro and metro areas

Input-output analysis

“here’s what should happen, according to the model.” - simple, good for quick estimates

Empirical estimates

“here’s what the data says did happen.” - more realistic, but harder to do

2 Critiques of Traditional Input-Output Analysis

1. Constant Wage Assumption: Tends to overstate employment multipliers

   1. Constant Labor Productivity Assumption: Tends to understate employment multipliers (ignores demand from agglomeration)

LQ > 1.0

Industry is more concentrated locally than

nationally — likely exporting (basic)

LQ ≈ 1.0

Industry roughly matches the national pattern

— likely just serving local demand

LQ < 1.0

Industry is under-represented — the region

may be a net importer for this good/service

LQ Formula

Direct Jobs

The jobs and income created at the

new/expanding business itself.

Indirect Jobs

Jobs created at local suppliers who sell

inputs to that business.

Induced Jobs

Jobs created when direct and indirect

workers spend their paychecks locally

Type I Multiplier

direct + indirect effects only

Type II Multiplier

direct + indirect + induced (adds re-spending of new income)

The Bid-Rent Curve

Explains relationship between land price and distance from CBD

3 Assumptions that change from mono to poly city model

Multiple Employment Centers, Multiple Income Groups, and Building Age & Quality

Three Unpriced Costs Behind Urban Sprawl, and their solutions

1. Unpriced Open Space Amenities - Growth Boundaries, development tax

2. Unpriced Traffic Congestion - Congestion pricing

3. Unpriced Infrastructure Costs - Impact fees

What is the rule for whether you should buy a house instead of rent?

Own if user cost of owning < market rent for an equivalent unit

Rent otherwise

Mortgage Interest Deduction

The government allows eligible homeowners to deduct certain mortgage interest expenses from their taxable income if they itemize their deductions.

Why does the MID do little to raise the homeownership rate?

It doesn't address the actual binding constraint for most renters — the down payment and closing costs.

4 ways to subsidize housing

1. Income grant - A lump sum of cash with no strings attached

2. Proportional rent subsidy - The government pays a fixed share of the rent bill

3. Housing voucher - Pays the gap between a local payment standard and about 30% of household income

4. Public housing - The government supplies a specific unit at a set rent, about 30% of income

MTO (Moving to Opportunity) Experiment Results

• Mental health improved

• Physical health improved

• Economic outcomes were mixed

• Children's outcomes depended on age

Tiebout Model

Different communities offer different bundles of taxes and public services (schools, parks, police). Households shop around and move to the community whose bundle fits their preferences best