At the 56th Annual North American Meetings of the Regional Science Association International (RSAI)
November 18-21, 2009
Grand Hyatt, San Francisco
Program Committee: Tom Holmes (Minnesota), Henry Overman (LSE), Esteban Rossi-Hansberg (Princeton), and Kurt Schmidheiny (Pompeu Fabra)
Steven Craig (University of Houston), Janet Kohlhase* (University of Houston), D. Andrew Austin (Congressional Research Service), Stephanie Botello (EmployStats)
1. Cities and Suburbs: Expenditure Patterns in the Urban Fiscal System
Our paper attempts to explain why large cities in the U.S. spend over 12% of their budget on low income assistance, despite economists’ prescriptions that such behavior is extremely inefficient. To do so, we model large urban areas and their surrounding suburbs with particular focus on the fiscal interactions and potential spillovers of local expenditure and tax decisions. Our paper is one of a few empirical papers to specifically model local-level government expenditure interactions to a competing-cities tax environment. The goal of the estimation strategy is to determine whether, and how much, large city governments respond to internally financed changes in expenditures by suburbs. We construct a panel data set of 50 of the largest cities in the U.S. and over 3200 of the surrounding suburbs for the years 1980-97. We estimate models using instrumental variables techniques where we instrument endogenous suburban spending and tax variables with variables measuring state aid to school districts. Our estimation strategy has three steps. First, we estimate the effect on city taxes and city spending of changes in average suburban expenditure. Second, we use our estimates to show whether cities respond differentially to the category of expenditure in suburban budgets. Three categories are specified: basic expenditures, urban transfer payments, and other expenditures. The third element of our estimation will compare the relative importance of several measured institutional features affecting urban government structure. The empirical results show that big cities are not in a Tiebout equilibrium. What is surprising, however, is the results indicate big cities appear to make their residents worse off when suburbs alter their budgetary choices to make their own suburban residents better off. A potential reason may be the desire for income redistribution at the local level.
Oded Hochman* (Ben Gurion University)
2. Efficient Agglomeration of Spatial Clubs
The literature on agglomeration has focused largely on primary agglomeration caused by direct attraction effects. Here we focus on secondary and tertiary agglomerations caused by a primary agglomeration. Initially, scale economies in the provision of club goods (CGs) lead each CG to agglomerate in facilities of a club. This primary agglomeration causes a secondary concentration of population around these facilities, which in turn brings about a tertiary agglomeration of facilities of different clubs into centers. The agglomeration of facilities occurs only if a secondary concentration of population takes place. We analyze in detail two specific patterns of agglomeration. One is the central location pattern in which the facilities of all clubs agglomerate perfectly in the middle of their joint market area. The second is a triple-centered complex in which the center in the middle of the complex consists of perfectly agglomerated facilities of different clubs, each with a single facility per complex. The other two sub-centers consist of facilities of different clubs, each with two facilities per complex. These sub-centers are closer to the middle of the complex than to the boundaries and their facilities form condensed clusters of facilities that may contain residential land in between the facilities.
Alex Anas ( State University of New York at Buffalo), David Pines* (Tel Aviv University)
4. Optimal structures of property tax in an urban setting as an optimal commodity tax (Ramsey problem)
This paper explores the characteristics of the optimal spatial property tax embedded in a system of (constrained) optimal monocentric cities. We find that, with a proper interpretation, this optimization problem is identical to that of optimal commodity taxation (a generalization of Ramsey (1927) problem). Yet, our solution yields results that substantially deviate from those reported in the literature. For example, in our case, constant elasticities of supply and demand need not imply a uniform tax rate across commodities. This paper's main issue is to solve this puzzle, that is, why our model and the standard literature on the optimal commodity taxation problem – e.g., see Atkinson and Stiglitz (1980) yield conflicting results. To that end we identify the differences in the underlying setups, explore which of these differences is responsible for the conflicting results, and how specifically these differences modify the standard results. In particular, we find that embedding the optimal commodity problem in a system of optimal monocentric cities is not responsible for the functional form of the solution but only for the signs of some parameters. The main reason for the conflicting results is the non-convexity of the consumption set, inherent in the spatial character of our problem.
Chair: David Pines
Discussants: 1. David Pines, 2. Janet Kohlhase, 3. Oded Hochman
Thomas Holmes* (University of Minesota), Wen-Tai Hsu (Chinese University Hong Kong), Sanghoon Lee (University of British Columbia)
1. A Tractable Model of Regional Agglomeration: Eaton-Kortum meets Krugman
Models of regional trade and agglomeration have been extremely influential in recent years. Krugman (1991) imbedded the Dixit-Stiglitz model of monopolistic competition into a regional model and initiated a major new literature. While this structure has proved extremely useful in making qualitative points and illustrating various channels of economic activity, the structure has limits due to limitations of its underlying Dixit-Stiglitz foundation. A alternative structure proposed by Ottaviano, Tabuchi and Thisse (2002) based on a linear-quadratic framework with linear demands has attracted attention, but has limitations of its own. The Eaton Kortum (2002) model of trade and geography along with its companion paper Bernard, Eaton, Jenson, Kortum (2003), hearafter BEJK, have been extremely influential in the field of international trade. The structure is very flexible, making it tractable for quantitative analysis. In the same way that the Dixit-Stiglitz model can be put into a trade context (where factors are immobile but goods can move) as well as a regional context (where factors and good both more), the BEJK model can likewise be put into both a trade context and a regional context. But so far, it has only been applied to trade. This paper is a first step to put the BEJK structure to work in a regional context. It revisits the standard issues examined in the existing Krugman-style model (as exposited, for example, in the monograph, Fujita, Krugman, Venable (1999)), as well as in the Ottaviano, Tabuchi, Thisse model. The paper complements an ongoing companion project of ours that puts the BEJK structure to work in a quantative context. To fully appreciate any quantitative results that might come out of the companion project, it is important to understand the mechanics of the model and how the mechanics relate to the existing literature.
Kristian Behrens (Department of Economics, Université du Québec à Montréal), Yoshitsugu Kanemoto* (Graduate School of Economics and Graduate School of Public Policy, University of Tokyo), Yasusada Murata (Advanced Research Institute for the Sciences and Humanities (ARISH), Nihon University)
2. The Henry George Theorem in a second-best world
It is well known that the HGT does not necessarily hold in a second-best world with price distortions. The purpose of this article is to identify conditions under which the HGT holds even in a second-best economy. We also examine in which direction the theorem needs to be modified when it does not hold. The fiscal surplus, defined as aggregate land rents minus aggregate losses from increasing returns, equals the excess burden created by increasing the number of agglomerations. The excess burden can be expressed as an extended version of the Harberger formula and may be positive or negative depending on functional forms of the utility function.
Hiroshi Aiura (Oita University), Yasuhiro Sato* (Osaka University)
3. A model of urban demography
This paper develops an overlapping generations model that involves endogenous determination of fertility and explicit city structure. We provide conditions under which there exists a unique steady state, which can replicate spatial features of demography observed in Japanese cities. We also provide comparative steady state analysis by calibration.
Marcus Berliant (Washington University in St. Louis), Chia-Ming Yu* (Washington University in St. Louis)
4. Locational Signaling and Agglomeration
Agglomeration can be caused by asymmetric information and a locational signaling effect. It is shown when workers' price elasticity for land is positively correlated with their productivity, skill-biased technological change causes a core-periphery bifurcation where the agglomeration of high-productivity workers eventually constitute a unique equilibrium. When workers' price elasticity for land and their productivity are negatively correlated, skill-biased technological improvement does not result in a core-periphery equilibrium. Necessary and sufficient conditions for the existence of a core- periphery equilibrium and for the stability of a completely symmetric equilibrium where both types reside in both locations are offered.
Chair: Chia-Ming Yu
Discussants: 1. Chia-Ming Yu, 2. Thomas Holmes, 3. Yoshitsugu Kanemoto, 4. Yasuhiro Sato
Lu Han* (University of Toronto)
1. The Risk-Return Relationship in Housing Markets: Financial Risk versus Consumption Insurance
Standard risk-return tradeoff theory cannot explain why housing return varies with risk positively in some markets but negatively in some other markets. This paper addresses this issue by incorporating two unique features of housing into a standard consumption-based asset pricing model: (1) intertemporal hedging incentives and (2) a kinked housing supply function. The model nests two competing eects of price risk on housing return: a nancial risk eect associated with owning risky housing asset, and a consumption insurance eect associated with using the current house to hedge against future housing cost risk. The empirical findings confirm several equilibrium predictions implied by the model. In particular, the variation in housing risk-return relationship across markets is driven by both local households' hedging incentives and housing supply constraints.
Karl Case (Wellesley College), John Cotter (University College Dublin), Stuart Gabriel* (UCLA)
2. Housing Investment, Risk, and Return: New Evidence from a Housing Asset-Pricing Model
This research evaluates the risk-return relationship in housing asset pricing. Our primary research objective is to determine whether measures of house price risk have explanatory power for house price returns and whether this relationship is robust to the presence of non-risk characteristics. We examine the relation both in the metropolitan cross-section and time-series of house price returns. We provide evidence of a strong positive relationship between housing risk and returns. This relationship remains after accounting for affordability, employment, and foreclosure effects. The findings are robust both in the cross-sectional and time-series relation between metropolitan-specific returns and aggregate housing market returns. We identify deviations for the risk measures in explaining common variation in returns. To assess the dynamics underpinning house price returns, we specify and test a housing version of the Capital Asset Pricing Model (CAPM). Here we equate the expected returns of metropolitan-specific house prices with aggregate US house price market returns. Moreover we augment the model by examining the impact of other risk factors including aggregate stock market returns, idiosyncratic risk, and MSA size effects. Our focus on the cross-sectional and intertemporal dynamics of US house prices is facilitated via the application of quarterly house price indices from the Office of Federal Housing Enterprise Oversight (OFHEO) for the 1985-2007 timeframe and across almost 200 MSAs. Our findings are supportive of the application of a housing investment risk-return model in explanation of variation in metro-area cross-section and time-series of US house price returns. Further, our results suggest the markedly elevated importance of a housing investment asset pricing framework over the course of the recent house price cycle.
Hideo Konishi* (Boston College)
3. Entrepreneurial Land Developers: Local Externalities and Mixed Housing Developments
Tiebout (1956) and Hamilton (1975) suggested that entrepreneurial land developers and voting with feet by consumers would result in an efficient allocation with homogeneous jurisdictions. Konishi (2008) formalized the idea. However, in the real life, condos or new suburban developments created by land developers are not necessarily homogeneous. They provide different types of units with various sizes and other characteristics catering to different type of customers. In this paper, we focus on local externalities among consumers within the development. Some consumers would be happy to pay high prices for the most prestigious units in the development, while some are happy to have modest units as long as the prices are good. We consider land developers who are entrepreneurial designing optimal mixes of units in the developments. We show that there exists an equilibrium, which is Pareto efficient as long as consumers and developers are optimistic in a certain sense.
Thomas Davidoff* (University of British Columbia)
4. Regional variation in home price appreciation and long-term care insurance demand
This paper provides empirical evidence that home equity crowds out demand for long-term care insurance (LTCI). I show that homeowners were relatively likelier to drop and less likelier to add LTCI than renters in markets that saw more home price appreciation between 1998 and 2004.
Chair: Thomas Davidoff
Discussants: 1. Thomas Davidoff, 2. Lu Han, 3. Stuart Gabriel, 4. Hideo Konishi
Yasuhiro Sato (Osaka University), Takatoshi Tabuchi (University of Tokyo), Kazuhiro Yamamoto* (Osaka University)
1. Market Size and Entrepreneurship
In order to examine the impacts of market size on entrepreneurship, we estimate a monopolistic competition model that involves entrepreneurial decision by using data on Japanese prefectures. Our results show that a larger market size measured by the population density leads to higher incentive of people to become entrepreneurs. a 10 percent increase in the population density increases the share of people who wish to become entrepreneurs by 2 percent. In contrast, the self-employment ratio is lower in prefectures with higher population density, which suggests that the market size has different impacts on the entrepreneurship in different stages.
Marius Brülhart* (University of Lausanne), Céline Carrère (University of Clermont-Ferrand 1), Federico Trionfetti (University of Aix-Marseille)
2. Decomposing Agglomeration Effects: How Wages and Employment Adjust to Improved Market Access
We study three dimensions of economic adjustment to changes in market access: wage versus employment responses, the time profile of adjustment, and intersectoral reallocations. Our analysis is based on the natural experiment provided by the opening of Central and Eastern European markets after the lifting of the Iron Curtain in 1990. We use a large and detailed data set for Austria and apply difference-in-difference techniques exploiting the variance across narrowly defined Austrian regions in the distance to the formerly communist economies. Improved market access is found to have statistically significant positive effects on nominal wages and net employment. While wage responses precede employment responses, the cumulative employment effect is estimated to be at least three times as large as the cumulative wage effect. We also find evidence of intersectoral specialisation effects even at a very small spatial scale.
Maarten Bosker* (University of Groningen), Eltjo Buringh (Utrecht University), Jan Luiten van Zanden (Utrecht University)
3. City seeds: the origins of the European city system
This paper empirically disentangles the importance of first and second nature geography in shaping the European city system. To do this we employ a rich new database covering all actual cities, as well as several ‘potential’ city locations, in Europe over the period 800-1800. We relate each location’s probability to become a city to its physical, 1st nature, characteristics as well as to the, 2nd nature, characteristics of the urban system surrounding each potential city location. Instead of the, up to now, largely narrative historical accounts on the role of geography in determining the location of cities in Europe, the estimation results provide empirical evidence into the important, and changing, role of geography in creating the European city system. 1st nature geography is the dominant explanation from the 9th until the 16th century, but, 2nd nature geography gains in importance from the 17th century onwards.
Mark Partridge (Ohio State University), Dan Rickman* (Oklahoma State University), Kamar Ali (University of Saskatchewan), M. Rose Olfert (University of Saskatchewan)
4. Recent Spatial Growth Dynamics in Wages and Housing Costs: Proximity to Urban Production Externalities and Consumer Amenities
Despite advances in communications and transportation technology, remoteness within the United States has been increasingly associated with relatively lower economic growth. Using a hedonic pricing approach, this paper assesses the relative importance of proximity to urban consumer amenities and production spillovers in explaining growth differentials in wages and housing costs across the U.S. urban hierarchy. In general, we find that productivity disadvantages increased with remoteness from urban agglomeration over time. At the same time, we find remoteness from larger metropolitan areas as increasingly attractive to households. In decomposing these influences on wage growth differentials, we find that the dominant force for lower wage growth in remote nonmetropolitan and small metropolitan-area counties is increasing relative productivity disadvantages. Yet, for medium-to-large metropolitan areas, increased attractiveness to households of remoteness from even larger metropolitan areas generally contributed the most to relatively weaker wage growth.
Chair: Dan Rickman
Discussants: 1. Dan Rickman, 2. Kazuhiro Yamamoto, 3. Marius Brülhart, 4. Maarten Bosker
Chengri Ding* (University of Maryland), Xingshuo Zhao (University of Maryland)
1. Development of Housing and Land Markets and Urban Spatial Structure:Evidence from Beijing
Standard urban economic models have provided theoretical basis for the linkage between housing and land prices and urban spatial structure which is usually measured by population or capital density. In building this linkage, the elasticity of capital-land substitution plays important role to allow optimal choices on the amount of capital and land inputs in housing production. As a determinant, the elasticity of capital-land substitution influences the land rent gradient, the population density gradient, the factor shares of land and housing capital, and the elasticity of supply of housing. While conventional empirical works mainly focused on provide evidence for the negatively sloped prices curves, no theoretical or empirical studies have shown the explicit relationship between the elasticity of capital-land substitution and the urban spatial structure. This will be focused in this study. Using a sample of 280 observations that have prices information for land and housing (same lots) in Beijing for the period of 1999-2003, this study develops empirical models to check price and density gradients, estimate the elasticity of capital-land substitution, and test relationships. The preliminary results show that (1) both the land and housing prices decay significantly away from the city center, and the land prices decay faster than that of housing prices as predicted in theory; (2) the estimates for the elasticity of land-capital substitution in both CES and VES approaches fall into the range in the literature and significantly smaller than 1; (3) the housing capital density gradient is negatively sloped with distance and its absolute value is positively associated with the elasticity of land-capital substitution; and (4) the ratio of the elasticities of land and housing prices with respect to distance is significantly bigger than 1 and positively associated with the elasticity of land-capital substitution.
Hongbin Cai (Peking University), Vernon Henderson* (Brown University), Qinghua Zhang (Peking University)
2. China’s Land Market Auctions: Evidence of Corruption?
This paper studies the urban land market in China in 2003—2007. In China, all urban land is owned by the state. Leasehold use rights for land for (re)development are sold by city governments and are a key source of city revenue. Leasehold sales are viewed as a major venue for corruption, prompting a number of reforms over the years. Reforms now require all leasehold rights be sold at public auction. There are two main types of auction: regular English auction and an unusual type which we call a “two stage auction”. The latter type of auction seems more subject to corruption, and to side deals between potential bidders and the auctioneer. Absent corruption, theory suggests that two stage auctions would most likely maximize sales revenue for properties which are likely to have relatively few bidders, or are “cold”, which would suggest negative selection on property unobservables into such auctions. However, if such auctions are more corruptible, that could involve positive selection as city officials divert hotter properties to a more corruptible auction form. The paper finds that, overall, sales prices are lower for two stage auctions, and there is strong evidence of positive selection. The price difference is explained primarily by the fact that two stage auctions typically have just one bidder, or no competition despite the vibrant land market in Chinese cities.
Maarten Bosker (University of Groningen), Steven Brakman (University of Groningen ), Harry Garretsen* (University of Groningen ), Marc Schramm (Utrecht University)
3. Agglomeration, Labor Mobility and Wages across Chinese Cities: Urban Development in China and New Economic Geography
In this paper we use and extend a New Economic Geography (NEG) model (Puga, 1999) to analyse the agglomeration-labor mobility nexus for the case of China. The reason to use a NEG model is that the spatial allocation of economic activity is determined by the relative strength of agglomerating and spreading forces. In Puga (1999) the balance between these forces and hence the equilibrium spatial allocation depends crucially on the degree of interregional labor mobility. Based on a sample of 264 Chinese Prefecture cities, we first estimate the equilibrium wage equation that is central in NEG models. The estimated wage equation not only empirically establishes the link between city wages and a city’s market access (economic geography) but also provides two key model parameters that together make up for the so called free-ness of trade which is central in the subsequent simulation analysis of the relationship between agglomeration and labor mobility between the 264 Chinese cities in our sample. Our findings are that indeed real market access is an important determinant of Chinese city-wages. Furthermore, when analysing the long run equilibrium spatial allocation, and using the estimates as input for the simulations, more labor mobility leads to a more pronounced core-periphery outcome for China. We show this by relaxing the assumptions with regard to the restrictions placed on interregional labor mobility. Economic geography does matter. The large (port) cities on the eastern seaboard (with the best access to the rest of the world) typically can become even more important when the degree of labor mobility increases. But this is not the only possible outcome. We also show that inland cities that are well placed in terms of their inter-city market access can become much more dominant.
Benjamin Faber* (London School of Economics)
4. Integration and the Periphery: The Unintended Effects of New Highways in a Developing Country
In 1992, China’s State Council approved one of the most ambitious infrastructure projects in human history: the National Trunk Highway System. Its objectives were to connect all provincial capitals and cities with an urban population above 500,000. In the first part, I exploit this historical setting as a natural experiment to identify the county level economic effects of new highways. I use high resolution satellite data on land cover and elevation to construct a hypothetical least cost spanning tree network as instrument for actual route placements. I find large and significant negative effects on economic growth among counties on the way between targeted nodes. In the second part, I turn to the microeconomic channels underlying these reduced form effects. I consider alternative explanations and find empirical support for the predictions of a simple analytically solvable core-periphery model. To the best of my knowledge, these results present the first empirical evidence for home market magnification effects of trade integration between uneven regions.
Chair: Benjamin Faber
Discussants: 1. Benjamin Faber, 2. Chengri Ding, 3. Vernon Henderson, 4. Harry Garretsen
Antonio Accetturo* (Bank of Italy), Guido de Blasio (Bank of Italy)
1. Policies for Local Development: An Evaluation of Italy’s “Patti Territoriali”
In Italy, Patti Territoriali (Territorial Pacts, TPs) are one the most important means of fostering growth in disadvantaged areas. A TP is an agreement between local governments and representatives of civil society (mainly entrepreneurs and trade unions) of a number of neighboring municipalities, which is subsequently endorsed by the central government. The agreement consists of a fully-fledged development plan, which includes a series of private and public investments for which public funding is provided. This paper evaluates the effectiveness of TPs by comparing the economic performance –in terms of employment and number of plants – of the municipalities taking part in a TP with a sample of municipalities not involved in the policy. The results suggest that the program has been largely ineffective in stimulating growth.
Leo Feler* (Brown University)
2. Capital Subsidies and Agglomeration Economies: Evidence from Brazilian Cities
This paper examines how the privatization of state-owned banks and the elimination of capital subsidies to small cities in Brazil result in a reallocation of economic activity away from small cities and in favor of large cities. It assesses how state-bank privatization affects lending in privatizing cities and how firms and workers adjust to changes in the availability of credit. After state banks are privatized, small privatizing cities lose capital, firms, and high-skilled employment, but gain low-skilled employment. Large privatizing cities gain capital, firms, and both high-skilled and low-skilled employment. The increase in low-skilled employment in both small and large privatizing cities is consistent with a theory where low-skilled labor and capital are substitutes and high-skilled labor and capital are complements. In non-privatizing cities, where state-bank privatization does not occur, there is little change in capital, firms, and employment relative to previous trends. This provides a counterfactual for what would have occurred in privatizing cities if state banks had not been privatized. The de-industrialization and reallocation of economic activity away from small privatizing cities once capital subsidies are eliminated suggest that even decades of subsidized capital may not have been sufficient to create lasting agglomeration economies.
Robert Chirinko (University of Illinois at Chicago), Daniel Wilson* (Federal Reserve Bank of San Francisco)
3. Job Creation Tax Credits and Job Growth: Whether, Where, and When?
The sharp fall in U.S. economic activity since late 2007 has generated discussions about innovative fiscal policy instruments, such as job creation tax credits (JCTCs), to counter the even sharper rise in unemployment. This paper uses newly compiled panel data on U.S. states over the past 30 years to investigate three important aspects of JCTCs: whether, where and when they affect job growth. First, we assess whether JCTCs succeed in stimulating job growth within the enacting state or are merely an inframarginal transfer to employers. Second, we explore where the employment effects of JCTCs are to be found. Specifically, do these credits affect only in-state job growth or do they also negatively affect job growth in “neighboring” states? Third, we evaluate when JCTCs' employment effects occur? We exploit the implementation lags that frequently exist between when tax legislation is enacted and when it goes into effect. These lags may give rise to “anticipation effects” whereby firms delay hiring between the enactment and effective dates and then expand hiring when the credit goes into effect. This general phenomenon – sometimes called “Ashenfelter’s Dip” in labor economics or “fiscal foresight” in macroeconomics – has become an important topic in recent debates over the effects of fiscal policy (e.g., Ramey (2008), Romer and Romer (2009), and Leeper, Walker, and Yang (2009)). We investigate whether, where, and when JCTCs affect job growth using a difference-in-differences estimator applied to monthly panel data on employment, the JCTC value, the JCTC effective and legislative dates, and various controls.
Leah Brooks* (University of Toronto), Justin Phillips (Columbia University)
4. When Do Cities Bind Themselves? The Existence and Extent of Locally-Imposed Tax and Expenditure Limits
Though the social science literature has thoroughly dissected the extent, causes, and consequences of state-mandated tax and expenditure limits on cities, to date there has been no systematic knowledge about or even whether cities enact such limits on themselves. Our survey of cities shows that at least one in eight municipalities has a locally-imposed limit on taxation or spending, and that these limits focus predominantly on the property tax. We combine our survey data with a 35-year panel on municipal finances and demographics and find that voters act to restrict politician behavior in home rule cities, in cities in metropolitan areas with few municipalities, and in places where the population composition is changing quickly. We interpret these findings as broadly consistent with a model in which voters adopt TELs in an attempt to insure themselves against future political changes.
Chair: Leah Brooks
Discussants: 1. Leah Brooks, 2. Antonio Accetturo, 3. Leo Feler, 4. Daniel Wilson
Olaf Jonkeren (VU University, Amsterdam), Jos van Ommeren* (VU University, Amsterdam), Piet Rietveld (VU University, Amsterdam)
1. Endogenous freight prices, joint costs and trade imbalances
We aim to identify to what extent freight prices, one of the main components of trade costs, are endogenous with respect to trade imbalances, because transport costs are joint. We focus on the inland shipping market in north-west Europe. Our identifying methodology is based on natural variation in water levels of the River Rhine. Low water levels reduce carriers' maximum capacity and therefore increase unit transport costs. Our results imply that freight prices are highly endogenous with respect to trade. Regions with an inland shipping transport surplus pay a larger share of the joint transport costs. The estimates imply that the effect of an exogenous increase in joint transport costs on freight prices is 3% higher when the surplus is 10% higher.
Mogens Fosgerau (Technical University of Denmark), Kenneth Small* (University of California at Irvine)
2. Marginal congestion cost on a dynamic network with queue spillbacks
We formulate an empirical model of congestion for a network where queues may form and spill back from one link to another. Its purpose is to disentangle the dynamic effect that a marginal vehicle, on a given link and at a given time, has on the distribution of travel times experienced there and on connected links. We estimate a dynamic model, based on an unusually complete and accurate dataset from Danish motorways. Each data point contains information on the vehicle flow on a link during a five-minute interval, along with the average speed experienced by those vehicles as measured by timed license-plate matches. We use the results to estimate the marginal external cost of adding a vehicle to a link’s entry flow, as it is influenced by conditions on that link and on its downstream neighbor.
Bert Lue* (University of Michigan), David Albouy (University of Michigan)
3. Driving to Opportunities: Commuting and Sub-Metropolitan Quality-of-Life Measures
This paper creates a spatial equilibrium model of residential location in which households choose where to live based on amenities, wages, housing-costs, and previously ignored commuting times. The model is applied to US census data to estimate quality of life at the county level; counties within and across metropolitan areas are comparable within this framework. Counties containing central cities and nearby suburbs have the highest quality of life, while non-metropolitan areas have the lowest. An example of sub-county analysis is performed to illustrate the importance of commute times. Further, these quality of life measures are used to estimate amenity values.
Raven Molloy (Federal Reserve Board of Governors), Hui Shan* (Federal Reserve Board of Governors)
4. I want my SUV: The Effect of Gas Prices on Household Location
Substantial increases in gas prices can alter urban form by raising transportation costs and causing households to want to live closer to their place of work. Thus, the large increases in gas prices since 2000 should have reduced the relative price and quantity of housing in locations where commute times are relatively long. Using quarterly panel data on ZIP codes and places in about 300 metropolitan areas of the United States, we find that in locations where the average commute time in 2000 was 50 percent longer, a 10 percent increase in gas prices leads to 0.7 percent lower house prices and a 0.1 percent smaller housing stock after 5 years. We also examine the heterogeneity of these effects across geographic areas. Our findings suggest that some people prefer to keep their inefficient cars and shorten their commute rather than drive a more fuel-efficient car or change their mode of transportation to work.
Chair: Hui Shan
Discussants: 1. Hui Shan, 2. Jos van Ommeren, 3. Kenneth Small, 4. Bert Lue
Francisco Martinez (University of Chile), Alex Anas* (State University of New York at Buffalo)
1. Multinomial Logit as a Model of Stochastic Matching with Bilateral Rational Expectations
Discrete choice models are used to study how consumers with idiosyncratic taste attachments to highly differentiated discrete goods such as housing, automobiles, communities or locations, sort themselves in such markets. Two types of equilibrium sorting have been stipulated and studied. In the first, consumers are price takers and, given the known prices of the discrete alternatives, choose their most-preferred one. In the second, consumers have a reservation utility level and reveal bids on each alternative, while sorting is resolved by each supplier choosing the highest bidder. We show that under constant marginal utility of income, and when the additive idiosyncratic preference of a consumer for an alternative is a serially uncorrelated shock drawn each period from the same Gumbel distribution, the two sorting models are mutually consistent and form an efficient market mechanism for the stochastic matching up of consumers and suppliers, as long as all act with rational expectations about the idiosyncratic shocks, suppliers anticipate the consumers’ reservation utility and consumers anticipate the suppliers’ reservation price. The discrete choice probabilities of the consumers and the suppliers are multinomial logit models based on the same fundamentals and with dispersion parameters that are proportional to each other. We also show that the consumer and supplier choice probabilities are socially optimal in that they maximize the aggregate expected welfare under the price-auction or the bid-auction respectively.
Kurt Schmidheiny* (Universitat Pompeu Fabra), Marius Brülhart (University of Lausanne)
2. On the Equivalence of Location Choice Models: Conditional Logit, Nested Logit and Poisson
It is well understood that the two most popular empirical models of location choice - conditional logit and Poisson - return identical coefficient estimates when the regressors are not individual specific. We show that these two models differ starkly in terms of their implied predictions. The conditional logit model represents a zero-sum world, in which one region's gain is the other regions' loss. In contrast, the Poisson model implies a positive-sum economy, in which one region's gain is no other region's loss. We also show that all intermediate cases can be represented as a nested logit model with a single outside option. The nested logit turns out to be a linear combination of the conditional logit and Poisson models. Conditional logit and Poisson elasticities mark the polar cases and can therefore serve as boundary values in applied research.
Vernon Henderson (Brown University), Adam Storeygard* (Brown University), David N. Weil (Brown University)
3. Measuring Economic Growth from Outer Space
GDP growth is poorly measured in a number of countries and is not measured in most countries at sub-national levels such as cities. We propose the use of a readily available proxy for income: satellite data on lights at night. To our knowledge this is the first global analysis using panel night lights data. We develop a statistical framework to use changes in night lights over time to supplement existing measures of income growth, to get better estimates of true income growth. We illustrate with an application to countries that are rated the poorest in data quality, to see how estimates of growth rates for these countries are altered by this new information. We then apply the night lights framework to a context where no income data are available at all, to study a longstanding debate about whether increases in local agricultural productivity and incomes in rural areas increase city incomes, as opposed to the usual assumption that either local agriculture incomes are dependent on city growth, or that there is no connection. We find for African cities that exogenous productivity shocks in agriculture (years of high rainfall) have a significant and substantial effect on the level of local urban economic activity.
Tatsuhito Kono* (Tohoku University), Kirti Kusum Joshi (Tohoku University), Yuichi Morita (Tohoku University)
4. Maximum and Minimum Floor Area Ratio Regulations for a monocentric city with Traffic Congestion
For a monocentric city with traffic congestion, Wheaton [W. C. Wheaton, Land Use and Density in Cities with Congestion, Journal of Urban Economics, 43 (1998) 258-272] describes that, to optimize the congestion externality, lot size zoning requires upward adjustment to the market population density throughout the city, and that optimal lot size regulation is the first-best policy. We show that, in contrast to lot size zoning, optimal Floor Area Ratio (FAR) regulation is at most a second-best policy, and requires, in a closed city, not only upward adjustment to the market population density at central locations by minimum FAR regulation but also downward adjustment at boundary locations by maximum FAR regulation. In an open city, only the latter is required. These results indicate that the imposition of maximum FAR regulation alone, which is a common practice in many cities, is insufficient for closed cities, despite its effectiveness for open cities.
Chair: Tatsuhito Kono
Discussants: 1. Tatsuhito Kono, 2. Alex Anas, 3. Kurt Schmidheiny, 4. Adam Storeygard
Pierre M Picard* (University of Luxembourg)
1. Economic Geography and the Choice of Product Quality
The present paper studies the effect of the choice of product quality on trade and location of firms. We build a quality-augmented version of Ottaviano et al. 's (2002) and Foster et al.'s (2008) model where consumers have preferences for the quality of a set of manufacturing varieties. Firms do not only develop and sell manufacturing varieties in a monopolistic competitive market but also determine the quality level of their varieties by investing in research and development. We consider a footloose capital model where capital is allocated to the manufacturing firms in the region offering the highest return. We show that the larger region produces varieties of higher quality and that the quality gap increases with larger asymmetries in region sizes and with larger trade costs. Finally, the home market effect can be reversed when firms choose their product quality as the number of firms in the larger region does not necessarily increase with the size of that region.
Antonio Accetturo* (Bank of Italy, Milan branch), Matteo Bugamelli (Research Department, Banca d'Italia), Andrea Lamorgese (Research Department, Banca d'Italia)
2. Immigration and investment: some theory and evidence on Italian firm level data
The aim of this paper is to assess the impact of immigration in Italian cities on the investment decisions by firms. First, we present a theoretical model which shows, in a partial equilibrium monopolistic competition framework, how firms endogenously respond to the skill level of their workforce by changing their investment decisions. Second, we test the predictions of the model in a sample of Italian manufacturing firms. We find that on average a larger immigrant inflow, computed at provincial level, increases firms' investment rate in machineries. Our finding is robust to endogeneity concerns. Immigration increases the probability to make large investments while small firms and more competitive sectors react to the availability of foreign workers by accumulating relatively more capital.
Howard Bodenhorn (Clemson University), David Cuberes* (University of Alicante)
3. Financial Development and City Growth
This paper studies the link between the process of city formation and city growth with the development of the financial system in the United States in the 1800-1950 period. There is widespread agreement on the fact that in most countries – and certainly in the U.S.-, the role of city developers has been crucial for the development of cities. Our hypothesis is that a necessary input for these developers was the availability of financial institutions that could provide the funds necessary to invest in specific cities. If that is indeed the case, one should observe a positive correlation between the timing of the development of the banking and financial system in different cities and their population growth. Our source of identification strategy is the existence of several exogenous regime shifts in banking laws that took place in different states in the 1930s. Our preliminary results confirm a positive and strong correlation between (lagged) financial development and current city growth. This is the case even when one controls for geographical characteristics of the city- for example the existence of a navigable canal-, the percentage of population working in agriculture, and initial population. By studying the link between city growth and financial development we aim to shed light on the –still debatable- relationship between the latter and economic growth in the very long run.
David Albouy* (University of Michigan)
4. What Are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values
Estimates of local land rents and firm productivity from wage and housing-cost data should incorporate parameters from the housing production function. Across cities, differences in amenity values are capitalized into the sum of local land values and federal-tax payments. Improved modeling is used to predict how amenities affect wages and housing costs, estimate quality-of-life and firm-productivity differences across U.S. cities, and revise estimates of the value of public-infrastructure investments. Land values vary mainly from quality-of-life differences, while total city values vary mainly from firm-productivity differences. The most valuable cities are generally coastal, sunny, and have large or well-educated populations.
Chair: David Albouy
Discussants: 1. David Albouy, 2. Pierre M Picard, 3. Antonio Accetturo, 4. David Cuberes
Yannis Ioannides* (Tufts University)
1. Labor Turnover and Urban Structure
The paper extends a basic model of specialization and intercity trade, that combines the classic system-of-cities literature with the newer economic geography literature, to the case of labor turnover and unemployment. It does so by adapting features of the Pissarides matching model, applied to the case of large firms [Pissarides (2000)], and of Wassmer--Zenou (2002) to study urban business cycles. The same basic features of the model can explain urban specialization and the consequences of labor market turnover. Introducing labor market turnover in the system of cities model allows one to examine general features of urban booms and slumps. When the national economy is hit by a macro shock, how do different cities' economies adjust? Do wages in some cities decline more in the aggregate national economy and why? How about unemployment and interurban migration? Such questions, which mirror quite closely those asked by Blanchard and Katz (1992) at the level of US states, and by others at the level of EU nations, may be addressed by further development of the model of urban structure in the presence of labor turnover that is introduced in this paper.
Wen-Tai Hsu* (Chinese University of Hong Kong)
2. Central Place Theory and City Size Distribution
This paper proposes a theory of city size distribution via a hierarchy approach, instead of the popular random growth process. It does so by formalizing central place theory using an equilibrium entry model and by specifying the conditions under which the city size distribution follows the power law. Central place theory describes how a hierarchical city system with different layers of cities serving different sized market areas is formed from a uniformly populated space. In this model, the main force driving the size difference of cities is the tradeoff between transportation cost and scale economies, which differs across goods due to different fixed costs of production. As a central place hierarchy also implies a hierarchy of firms, the power law distribution for firm size is obtained under the same set of conditions. The theory is also consistent with a newly discovered empirical regularity, the number-average-size rule, which is a log-linear relationship between the number and average size of the cities in which an industry is located.
Nathan Seegert* (University of Michigan), David Albouy (University of Michigan)
3. The Optimal Distribution of Population Across Cities and the Private-Social Wedge
In a free migration equilibrium, cities may be inefficiently small when households pay federal taxes and land rents in the city they inhabit. This runs counter to previous theories, which ignore federal taxes and assume that migrants receive rental income from the city to which they move. Adding these simple and realistic factors into the canonical Alonso-Muth-Mills model provides innovative insights into the behavior of optimal city size models. Large cities provide positive externalities through higher tax revenues as well as greater agglomeration economies. However, large cities also create social losses in commuting costs and other negative externalities. We find that the fundamental tradeoffs between these positive and negative externalities are dramatically skewed when factors heretofore ignored by the literature are included. When modeled in a system of cities, we find it may be socially optimal to overpopulate large cities. In addition, quality of life and production amenities affect equilibrium conditions, causing migrants to respond strongly to cities with a high quality of life, but weakly to highly productive cities. An innovative calibration confirms that, in a realistic context, cities may, indeed be too small. This calibration is a contribution to the policy realm with important implications as the United States' population migrates from the rust belt to the sun belt.
Takatoshi Tabuchi* (University of Tokyo)
4. Self-organizing Marketplaces
Dynamics of retail firms in marketplaces are analyzed, assuming that firms compete under monopolistic competition within a marketplace as well as between marketplaces and consumers are uniformly distributed over space. The number, size, and location of marketplaces or edge cities are analytically obtained. Furthermore, extending the model to a two-dimensional space, Christaller-Lösch system of hexagonal market areas is analytically derived.
Chair: Takatoshi Tabuchi
Discussants: 1. Takatoshi Tabuchi, 2. Yannis Ioannides, 3. Wen-Tai Hsu, 4. Nathan Seegert
Stuart Gabriel (University of California, Los Angeles), Stuart Rosenthal* (Syracuse University)
1. Do the GSEs Expand the Supply of Mortgage Credit? New Evidence of Crowd Out in the Secondary Mortgage Market
The dramatic government takeover of Fannie Mae and Freddie Mac in September, 2008 was motivated in part by a desire to ensure adequate liquidity in the mortgage market. This study examines a closely related issue: the extent to which GSE activity crowds out mortgage purchases by private secondary market intermediaries. Evidence of substantial crowd out suggests that government support for the GSEs may be less warranted, while absence of crowd out implies that the GSEs enhance liquidity. Using 1994-2007 HMDA data for conventional, conforming sized, home purchase loans, three distinct periods with regard to GSE crowd out are apparent. From 1994 - 2003, the share of loans sold to the secondary market increased from 60 percent to nearly 100 percent, private sector and GSE market shares of loan purchases were similar, and IV estimates indicate relatively little GSE crowd out. From 2004 to 2006, private loan purchases boomed and dominated those of the GSEs, while IV estimates indicate close to 100 percent crowd out. With the crash in housing and mortgage markets in 2007, private sector intermediaries pulled back, the GSEs regained market share, and importantly, evidence of GSE crowd out disappeared. These patterns suggest that the degree of GSE crowd out varies with market conditions, and that the federal takeover of Fannie Mae and Freddie Mac likely has served to enhance liquidity to the mortgage market during the current mortgage market crisis.
Neil Bhutta* (Board of Governors of the Federal Reserve System), Hui Shan (Board of Governors of the Federal Reserve System), Jane Dokko (Board of Governors of the Federal Reserve System)
2. Default Decisions of Underwater Subprime Borrowers
We analyze the monthly default decisions of subprime borrowers who purchased homes during 2006 in four ``bubble'' states where house prices appreciated and depreciated rapidly. We specify default decisions as a flexible function of borrowers' home equity, which we measure by adjusting borrowers' loan-to-value ratios at origination with monthly zip-code-level house price indices, and estimate how much equity decreases below zero before borrowers begin to default. Our findings are threefold. First, consistent with Foote, Gerardi and Willen (2008), negative equity is not a sufficient condition for default for the vast majority of borrowers. Second, borrowers from ``bubble'' states begin to default when negative equity reaches 15%, which implies a lower bound of $45,000 to the median borrower for the monetary and psychic costs of default. Finally, the likelihood of default increases smoothly as equity falls as opposed to increasing discontinuously at a given value of negative equity, which suggests that borrowers exhibit heterogeneity in the monetary and psychic costs of default. We compare these results for borrowers in ``bubble'' states with those living in rust-belt states, which suggests heterogeneity in borrowers' response to negative equity across states. These results can help inform local, state, and federal policymakers as they discuss appropriate steps to stave foreclosures.
Carlos Garriga* (Federal Reserve Bank of St. Louis), Don Schlagenhauf (Florida State University)
3. Home Equity, Foreclosures, and Bail-outs
In the aftermath of the recent housing boom, foreclosure rates in the United States achieved record highs by historical standards. A key element to understand the increase in foreclosures rate is the leverage. An increase in leverage exposes homeowners to additional risk in the event of a decline in the house price. We develop an equilibrium model of long-term mortgage choice and default to understand the importance of this mechanism. The model captures the pattern of foreclosure rates across loan products. We find that the decline in house prices can account for most of the observed increase in the foreclosure rate in the United States. The model makes consistent predictions about the default rates across different loan types and the decline in home ownership.
Satyajit Chatterjee* (Federal Reserve Bank of Philadelphia), Burcu Eyigungor (Koc University)
4. Foreclosures and House Price Dynamics in Local Housing Markets
We develop a model of collateralized lending (mortgages) with the risk of default. Our analysis is motivated by the recent experience of declining house prices and rising defaults on mortgages in the United States and elsewhere. Our goal is to construct a calibrated, quantitative equilibrium model in which a shock to fundamentals can trigger defaults via its effect on house prices and use the model to study the effects of foreclosure prevention policies currently being implemented by the US government.
Chair: Satyajit Chatterjee
Discussants: 1. Satyajit Chatterjee, 2. Stuart Rosenthal, 3. Neil Bhutta, 4. Carlos Garriga
William Strange* (University of Toronto), Leah Brooks (University of Toronto)
1. The Micro-Empirics of Collective Action: The Case of Business Improvement Districts
This paper carries out a micro-level analysis of collective goods provision by focusing on the formation of Business Improvement Districts (BIDs). The paper’s theoretical and empirical analysis considers the entire process of collective action, including participation in initial organization, voting, and ultimate impacts on property values. BID benefits are shown to be highly uneven, and that BID formation is not a Pareto improvement. Furthermore, “anchor participants” who benefit disproportionately from collective action, are shown to be crucial for the viability of the institution, consistent with Olson (1965).
Ron Cheung* (Florida State University), Chris Cunningham (Federal Reserve Bank of Atlanta)
2. Voters Hold the Key: Lock-in, Mobility and the Portability of Property Tax Exemptions
Since California’s Proposition 13 passed in 1978, fifteen states have enacted caps on the growth in assessed property values. Reasons why voters support such caps include controlling special interests and addressing agency failures of government officials. Yet research has found that voters’ perception of a limitation’s consequences do not match reality, questioning the rationality of voter behavior. Countering this, another strand of literature argues that support for tax limitations is driven not by perceptions of government inefficiency, but by reasonable expectations of who will ultimately bear the limitation’s burden. We explore this view by exploiting the differential tax treatment generated by assessment caps in the context of a recent, novel referendum in Florida. Assessment caps are strongly linked to residential mobility. The differential tax treatment of long-held housing distorts the housing market by “locking in” homeowners into their increasingly suboptimal residences. We examine voter support for a 2008 constitutional amendment, which included a provision making the assessment cap portable within Florida. We test hypotheses that voters understood the mobility consequences and the net burden of such a change. Employing a dataset of every property in Florida, matched to census and electoral data, we predict the support for the amendment based on predicted tax savings, expected impact on homeowner mobility and demographic variables. We find that high potential tax savings and high expected mobility rates result in higher support for portability. We then explore whether the election results exhibited strategic behavior by voters to effectively redistribute the net burden of the amendment onto other taxpayers. We find that degree of racial segregation, presence of non-residential tax bases and share of out-of-state migrants contribute to voter support. Results suggest that voters were as concerned with reducing their own tax share at the expense of others as they were with curtailing local expenditures.
Gabriel Ahlfeldt* (University of Hamburg)
3. Blessing or curse? Gentrification, appreciation and resistance within the Berlin “Mediaspree”
This article investigates the 2008 referendum held in opposition against the “Mediaspree”, a major urban development project in Berlin that has been perceived as accelerating gentrification. Using precinct level data we analyze whether local appreciation can explain the spatial pattern of the electoral outcome, conditional on socio-demographics characteristics. Our findings suggest that in an environment of very low owner occupancy public projects are opposed when residents associate an (expected) increase in area valuation. This effects is, however, not strong enough to explain the localized resistance, which can at least be partially attributed to a feared loss of specific cultural amenities.
Matthew Turner* (University of Toronto)
4. The effects of land transfer taxes on real estate markets: Evidence from a natural experiment in Toronto
On January 31, 2007, the city of Toronto imposed a new Land Transfer Tax (LTT) which exacts about 1.1% of the sale price when a home changes hands. Using a regression discontinuity design, we estimate the effect of the LTT on the Toronto real estate market. We find that the LTT caused about a 15% decline in the number of transactions and a decline in prices about equal to the amount of the tax. We estimate the associated welfare loss associated and argue that a revenue neutral increase in property taxes leads to higher welfare.
Chair: Matthew Turner
Discussants: 1. Matthew Turner, 2. William Strange, 3. Ron Cheung, 4. Gabriel Ahlfeldt
Holger Sieg* (Carnegie Mellon University), Dennis Epple (Carnegie Mellon University), Judy Geyer (Carnegie Mellon University )
1. Excess Demand and Rationing in Equilibrium in the Market for Public Housing
We develop a model for the market of public housing that captures excess demand for public housing and rationing in equilibrium. While private housing is in ample supply, public housing is desirable and scarce. As a consequence demand of eligible households potentially exceeds available supply. A each point of time a fraction of households that used to live in public housing voluntarily leave public housing communities to rent in the private market. The housing authority can offer new eligible households access to the vacated units. In equilibrium the housing authority adjusts the offer probabilities so that the inflow into public housing equals the voluntary outflow. We characterize the equilibrium and develop a maximum likelihood estimator for the parameters of the model. The estimator accounts for enriched sampling and imposes the equilibrium conditions in estimation. We estimate the parameters of the model using a unique restricted use panel data set that allows us to follow low-income households in Pittsburgh over a five year period. We find that our model fits the data well. In equilibrium, there is significant amount of rationing and excess demand for public housing.
Kelly Bishop* (Washington University in St. Louis), Christopher Timmins (Duke University)
2. Simple, Consistent Estimation of the Marginal Willingness to Pay Function: Recovering Rosen's Second Stage without Instrumental Variables
Since the publication of Rosen's "Hedonic Prices and Implicit Markets", property value hedonics has been used extensively in the non-market valuation of environmental amenities (and local public goods), despite a number of important and well-known econometric problems. We propose a new approach to the estimation of the hedonic model that allows for exible and unobservably heterogeneous preferences while avoiding the endogeneity problems described by Epple (1987). Moreover, we do so without relying on the weak instrument strategies that have been typically used in the hedonic literature. We also demonstrate that these problems are not easily solved by way of simple preference inversion procedures, even with rich panel data on house purchases. Using data on ozone pollution in the Bay Area of California, we implement this estimator and find that controlling for endogeneity bias has imporant implications for valuing non-marginal pollution changes.
Patrick Bayer (Duke University), Robert McMillen (University of Toronto), Alvin Murphy* (Washington University in St Louis), Christopher Timmins (Duke University)
4. A Dynamic Model of Demand for Houses and Neighborhoods
We use a unique data set linking information about buyers and sellers to the complete census of housing transactions in the San Francisco metropolitan area for a period of 15 years to examine the microfoundations of housing market dynamics. We develop a tractable model of neighborhood choice in a dynamic setting along with a computationally straightforward estimation approach. This approach allows the observed and unobserved features of each neighborhood to evolve in a completely flexible way and uses information on neighborhood choice and the timing of moves to recover semi-parametrically: (i) preferences for housing and neighborhood attributes, (ii) preferences regarding the performance of the house as a financial asset (e.g., expected appreciation, volatility), and (iii) moving costs. This model and estimation approach is potentially applicable to the study a wide set of dynamic phenomena in housing markets and cities.
Chair: Alvin Murphy
Discussants: 1. Alvin Murphy, 2. Holger Sieg, 3. Kelly Bishop
Sanghoon Lee* (University of British Columbia), Qiang Li (Shanghai University of Finance and Economics)
1. Wages, Rents, and City Size Distribution
In this paper, we use the Roback model to study city size distribution. We make two changes to the Roback model. First, we add housing market and assume that housing supply differs across cities. Second, we allow productivity and amenities to depend on population size. These two conditions pin down population size for each city and we can study the city size distribution. We estimate the model and estimate the importance of local productivity, local amenities, and land supply in accounting for the city size distribution. It is well known that the city size distribution for the U.S. follows the Zipf distribution. We back out local productivity, local amenities, and housing supply from wage, rent, and population size data. In order to study the importance of each factor, we run the following counterfactual exercises. We assign the same mean value to each factor across all cities one by one, calculate the predicted city size distribution and calculate the Zipf coefficient. The results show that the Zipf coefficient increases by 39 percent when we assign the same productivity value to all cities, 26 percent with the same land supply, and 2 percent with the same amenity levels. This suggests that productivity plays the most important role in accounting for the city size distribution.
Frederic Robert-Nicoud* (University of Geneva), Kristian Behrens (UQAM), Gilles Duranton (University of Toronto)
2. Sorting, selection and agglomeration
It is well known that large cities are endowed with more productive agents than smaller cities. This may be true because the most talented agents sort themselves into the largest cities, because large cities select the best agents and fail the least productive, because large cities make all agents more productive by virtue of agglomeration economies, or thanks to any combination of these. This paper develops a model of systems of cities that combines all three elements. Heterogeneous agents sort themselves according to their 'talent' and, upon establishing in a city of their choosing, learn their 'skill'. We find that the urban premium rises with the level of skills and talent, thereby encouraging the most talented individuals to settle in large cities, and the least skilled individuals 'fail' and end up producing standardized goods and services.
Matthias Wrede* (University of Marburg)
3. Heterogenous Skills and Homogeneous Land: Segmentation and Agglomeration
This paper analyzes the impact of skill heterogeneity on regional patterns of production and housing in the presence of pecuniary externalities within a general-equilibrium framework assuming monopolistic competition at intermediate good markets. It shows that the interplay of heterogenous skills and relatively homogeneous land demand triggers skill segmentation and agglomeration. The core region, being more attractive to high skilled workers, has a disproportionately large share of production at all levels of the supply chain. The paper studies the effects on segmentation and agglomeration of interregional trade in intermediate goods, attachment to home, the presence of immobile unskilled workers, various conditions at local land markets, and federal taxation.
Kristian Behrens* (Université du Québec à Montréal), Frédéric Robert-Nicoud (Université de Genève)
4. Agglomeration, selection and accessibility in an urban system
This paper provides a microeconomically founded model in which an urban system endogenously emerges in the presence of heterogeneous entrepreneurs. To do so, we embed heterogeneity and selection mechanisms from the new trade theory in a multi-region urban agglomeration model. This model is both rich and tractable enough to allow for a detailed investigation of when and where cities emerge, what determines their equilibrium size, and how they interact through the channels of trade. We firstly derive a few general results linking city size and productivity and contrast them with US data. We then also investigate under which conditions the model delivers a regular size distribution of cities, and whether larger cities provide a larger range of consumption goods and have higher real incomes. Secondly, we provide several numerical illustrations of possible configurations of stable equilibria, and we link the resulting equilibrium patterns to the spatial structure of the economy. We pay particular attention to the spatial structure of the network of locations and how centrality influences city size and productivity. Using spatial econometric techniques and model simulation, we finally provide evidence for the fact that large urban centres cast 'agglomeration shadows' which inhibit the development of nearby cities.
Chair: Kristian Behrens
Discussants: 1. Kristian Behrens, 2. Sanghoon Lee, 3. Frederic Robert-Nicoud, 4. Matthias Wrede
Steve Gibbons (LSE), Henry Overman* (LSE), Matti Sarvimaki (LSE)
1. The impact of subsidizing commercial space in deprived neighbourhoods
Despite substantial public spending on regeneration we have relatively little evidence on the impact (and almost no evidence outside the US). This paper provides such evidence for a large UK regeneration programme (the Single Regeneration Budget). Using a number of empirical strategies we consider the impact on jobs, employment and house prices.
Jason Faberman* (Federal Reserve Bank of Philadelphia), Matthew Freedman (Cornell University)
2. Reallocation, Selection and the Sources of Earnings Growth in Cities
Recent research has explored the interaction of urban agglomeration with dynamic processes such as worker sorting and firm selection. To quantify the importance of these processes relative to potential location-specific benefits that occur purely within establishments, we explore their contribution to the variation in earnings growth across metropolitan areas. We use a decomposition methodology from the industrial organization literature often used to quantify the sources of productivity growth within an industry. The methodology allows us to quantify the importance of earnings growth that occurs purely within establishments relative to growth that results from compositional changes in accounting for variations in aggregate earnings growth across cities. We use a panel of administrative data of all establishments within U.S. metropolitan areas. Preliminary results suggest that, across major sectors, variation in the rates of earnings growth within establishments accounts for between one-sixth and one-half of the observed differences in metropolitan earnings growth, with higher shares observed in industries that are more spatially concentrated.
Jorge De la Roca* (CEMFI), Diego Puga (IMDEA, Universidad Carlos III and CEPR)
3. Who benefits the most from working in a dense city? Evidence from micro-data for Spain
Earnings are higher in denser urban environments. From the point of view of workers, higher earnings are at least partly offset by higher housing costs. From the point of view of firms, however, higher earnings are a sign of the productive advantages of denser cities. In this paper we explore variation in earnings across Spanish cities to investigate the magnitude and scope of agglomeration economies. We do so using Spain's Continuous Sample of Working Histories, a rich longitudinal dataset derived from social security records and income tax return which allows us to track workers through time and across jobs and urban areas. The elasticity of earnings for male employees born in Spain with respect to urban density is 0.05, after controlling for education, occupation, age, experience, tenure, 3-digit sector, firm size, and contractual characteristics. This implies that earnings in Madrid or Barcelona are over 35% higher than in a small provincial capital such as Lugo for a similar worker in a similar job. Relative to earlier papers investigating agglomeration economies with worker micro-data for other countries, we pay greater attention to the scope of agglomeration economies along three dimensions: temporal, spatial, and sectoral. Regarding the temporal dimension, we find that agglomeration economies, as reflected in earnings, have a very strong dynamic component. The earnings premium three years after arrival in a dense urban area is three times larger than within three years of arrival, a result that is not driven by the accumulation of experience or job tenure. To investigate the spatial scope of agglomeration economies, we study the impact of density in concentric rings of 5, 10 and 15 kilometres around a worker's job location. We also look at the sectoral scope of agglomeration economies by simultaneously considering sectoral employment density and overall density. We also look not just at average effects but at variation in earnings premia across workers within each city. Finally, we investigate whether earnings premia differ systematically for migrants and how migrants respond to premia. Please see the uploaded PDF for a longer abstract.
Nathaniel Baum-Snow* (Brown University), Ronni Pavan (University of Rochester)
4. Understanding the City Size Wage Gap
In 2000, wages of full time full year workers were more than 30 percent higher in metropolitan areas of over 1.5 million people than rural areas. The monotonic relationship between wages and city size is robust to controls for age, schooling and labor market experience. In this paper, we decompose the city size wage gap into various components. We propose a labor market search model that incorporates endogenous migration between large, medium and small cities. This model is sufficiently rich to allow for recovery of the underlying ability distributions of workers by city size, arrival rates of job offers by ability and location, and returns to experience by ability and location, when structurally estimated using longitudinal data. Estimates from the structural model facilitate a more complete empirical decomposition of the city size wage gap than is possible using results in existing research. Counterfactual simulations of the model indicate that variation in returns to experience and differences in wage intercepts across location type are the most important mechanisms contributing to the overall city size wage premium. Differences in wage intercepts generate the largest part of the city size wage premium for high school graduates while differences in returns to experience are more important for college graduates. Sorting on unobserved ability within education group and differences in labor market search frictions contribute slightly negatively if at all to observed city size wage premia.
Chair: Nathaniel Baum-Snow
Discussants: 1. Nathaniel Baum-Snow, 2. Henry Overman, 3. Jason Faberman, 4. Jorge De la Roca
Yves Zenou* (Stockholm University)
1. Social Interactions and Labor Market Outcomes in Cities
We develop a model where information about jobs is essentially obtained through friends and relatives, i.e. strong and weak ties. Workers commute to a business center to work and to interact with other people. We find that housing prices increase with the level of social interactions in the city because information about jobs is transmitted more rapidly and, as a result, individuals are more likely to be employed and to be able to pay higher land rents. We also show that, under some conditions, workers using more their weak ties than strong ties to find a job receive a higher wage. We finally demonstrate that workers living far away from jobs pay lower housing prices but experience higher unemployment rates than those living close to jobs because they mainly rely on their strong ties to obtain information about jobs.
Felix Weinhardt* (London School of Economics)
2. Moving into the Projects: Social Housing Neighborhoods and School Performance in England
We estimate the effect of living in a very deprived neighbourhood, as identified by a high density of social housing, on the educational attainment of fourteen years old (9th grade) students in England. Neighbourhoods with markedly high concentrations of social housing have very high unemployment and extremely low qualification rates, as well as high building density, rooms overcrowding and low house prices. In order to identify the causal impact of neighbourhood deprivation on pupil attainments, we exploit the timing of moving into these neighbourhoods. The timing of a move can be taken as exogenous because of long waiting lists for social housing in high-demand areas. This is a new strategy that by-passes the usual sorting and reflection problems. Using this approach, we find no evidence for otherwise negative effects, which has potentially wide-ranging implications for social housing policy.
Abdul Munasib* (Oklahoma State University)
3. Housing Tenure Choice Implications of Social Networks: A Structural Model Approach
The recent literature on housing tenure choice has been focusing increasingly on the information aspects of the tenure decision. Despite the crucial importance of social networks in information sharing and dissemination, the influence of social networks on housing tenure choice remains conspicuously unexplored. Social networks can encourage homeownership by channeling important knowledge and information regarding household finance, wealth management, mortgage and credit issues, etc. The analysis of the relationship between social networks and tenure decision, however, is complicated because of the issue of mobility. Because social networks in large part are tied to the physical location, the connection between social networks and tenure choice cannot be studied in isolation from the mobility decision. This paper presents a dynamic lifecycle model of joint mobility-housing tenure decision and social network accumulation. Parameters of this dynamic program are estimated using simulated method of moments (SMM) estimates. The data source is the Indonesian Family Life Survey (IFLS), a large scale survey of Indonesian households, which contains rich information on community participation by households allowing us to construct a comprehensive measure of social networks.
Edward Coulson* (Penn State University )
4. Housing prices and neighborhood homeownership and vacancies
We use the Cluster Samples from 1985, 1989 and 1993 waves of the American Housing Survey to quantify the dollar value of homeownership and vacancy externalities. The Cluster Samples are repeated observations on small groups of contiguous properties, usually about 10 in number. The cluster structure of the sample allows us to construct precise neighborhood demographic variables. The repeated nature of the sample allow us to use panel methods to deal with the self-selection of both owner-occupied and vacant property due to static unobserved neighborhood characteristics, and our observations of neighborhood entry and exit allow modeling of dynamic unobservables.
Chair: Edward Coulson
Discussants: 1. Edward Coulson, 2. Yves Zenou, 3. Felix Weinhardt, 4. Abdul Munasib
Jordi Jofre-Monseny* (Universitat de Barcelona), Albert Solé-Ollé (Universitat de Barcelona)
1. Is agglomeration taxable?
Several theoretical papers that examine tax competition with agglomeration effects have stressed the possibility that those governments of jurisdictions in which economic activity is clustered can tax firms more heavily (taxable agglomeration rents). In this paper we examine the tax rate setting decision of the Spanish municipal business tax (Impuesto sobre Actividades Económicas). The analysis, carried out with a sample of 2,621 municipalities, focuses on the effect that urbanization economies, localization economies and the market potential of municipalities have on its business tax rate. High urbanization economies, high localization economies and high market potential are all municipal attributes that are found to increase the business tax rate.
Hyun-Ju Koh* (University of Munich), Riedel Nadine (Oxford University Centre for Business Taxation)
2. Taxing Agglomeration Rents: The Importance of Being Different
We empirically investigate the impact of firm agglomeration on jurisdictional tax setting behavior. Our testing ground is the German local business tax which is set at the municipality level. Exploiting a rich data source on the population of German firms, we find evidence for effects of urbanization economies (i.e. the general agglomeration of firms) and localization economies (i.e. the agglomeration of firms in the same industry) on the jurisdictional tax rate choice. We moreover show that a jurisdiction's potential to tax agglomeration rents depends on the difference of its agglomeration characteristics to neighboring communities. Precisely, we find that German municipalities tend to set high local business taxes if they observe large firm and industry agglomerations relative to neighboring communities. To account for potential reverse causality problems, our analysis exploits long-lagged population and infrastructure data to instrument for the agglomeration measures.
Michael Pflüger* (University of Passau), Rainald Borck (University of Passau), Hyun-Ju Koh (University of Munich)
3. Inefficient Lock-in and Subsidy Competition
This paper shows that subsidy competition may be efficiency enhancing. We model a subsidy game among two asymmetric regions in a new trade model, where capital can freely move among regions, but capital rewards are repatriated. We study subsidy competition, starting from an equilibrium where the industry core is inefficiently locked in to the smaller region. When regions weigh workers' and capitalists' welfare equally, the core region will set its subsidy low enough that the industry relocates to the larger region, restoring an efficient allocation. When workers' welfare is weighted more heavily, the core may pay subsidies that are high enough to prevent a relocation of industry.
Keith Ihlanfeldt* (Florida State University), Tom Mayock (Florida State University)
Information, search, and house prices: Revisited
Chair: Keith Ihlanfeldt
Discussants: 1. Keith Ihlanfeldt, 2. Jordi Jofre-Monseny, 3. Hyun-Ju Koh, 4. Michael Pflüger
Arthur O'Sullivan* (Lewis & Clark College), Robert Helsley (University of California, Berkeley)
1. A Three-Dimensional Agent-Based Model of Urban Land Use
We are developing an agent-based model of urban land use that shows how regular patterns of urban land use emerge from the interactions of firms and residents. Agents make choices in three dimensions: longitude, latitude, and altitude (building height), and all choices are based on profit maximization and utility maximization. The patterns of land use that emerge from our model are determined by the nature of the interactions between agents and the details of the urban geography. Firms are subject to centripetal forces (sharing information and tapping a common supplier of an intermediate input) and centrifugal forces (competing for workers). Residents have a preference for residential neighbors, generating another centripetal force for employment. The transportation infrastructure is either a central export node (a port) or a highway running through the city. Firms in a knowledge-based industry have the option of forming networks with other firms, using direct and indirect links to facilitate the transmission of information.
Wen-Jung Liang (Tamkang University), Chao-Cheng Mai (Academia Sinica), Jacques-François Thisse (CORE), Ping Wang* (Washington University in St. Louis)
2. An Economic Theory of Marshallian Industrial Districts
Modern industrial districts or science parks are designed to accommodate high-tech upstream firms, which provide an environment that fosters location-dependent knowledge spillovers and promote R&D investments by firms. Yet, not much is known about the economic conditions under which such districts may form. This paper develops a general equilibrium model with a competitive final sector and a monopolistic competitive intermediate sector, which allows us to determine necessary and su¢ cient conditions for one or several districts to emerge. When a science park arises as a market equilibrium configuration, we find that the output in the nal sector and workers' well-being is higher than the comparable figures under alternative equilibrium con gurations.
Jan Brueckner (UC Irvine), Robert Helsley* (UC Berkeley)
3. Sprawl and Blight
The objective of this paper is to show how the same market failures that give rise to urban sprawl also give rise to urban blight. The paper develops a simple dynamic model in which new suburban and older central-city properties compete for mobile residents. The level of housing services generated by older properties depends on current maintenance or reinvestments expenditures. In this setting, market failures that reduce the cost of occupying suburban locations, thus leading to excessive suburban development, also depress central-city housing prices and undermine maintenance incentives, leading to deficient levels of central-city reinvestment. Corrective policies that shift population from the suburbs to the center result in higher levels of reinvestment in central-city housing, therefore reducing urban blight. Controlling for income and region, the paper's empirical work shows that several structural and neighborhood measures of blight from the AHS are negatively and significantly related to population growth, an outcome consistent with a subsidiary prediction of the model.
Klaus Desmet (Universidad Carlos III), Esteban Rossi-Hansberg* (Princeton University)
4. Spatial Development
We present a theory of spatial development. A continuum of locations in a geographic area choose each period how much to innovate (if at all) in manufacturing and services. Locations can trade subject to transport costs and technology diffuses spatially across locations. The result is an endogenous growth theory that can shed light on the link between the evolution of economic activity over time and space. We apply the model to study the evolution of the U.S. economy in the last few decades and find that the model can generate the reduction in the employment share in manufacturing, the increase in service productivity in the second part of the 1990s, the increase in land rents in the same period, as well as several other spatial and temporal patterns.
Chair: Esteban Rossi-Hansberg
Discussants: 1. Esteban Rossi-Hansberg, 2. Arthur O'Sullivan, 3. Ping Wang, 4. Robert Helsley
Marcus Berliant* (Washington University in St. Louis), Masahisa Fujita (Konan University)
1. Culture and Diversity in Knowledge Creation
How does diversity of knowledge affect knowledge creation in teams? How does the act of knowledge creation affect researchers? What are the costs and benefits of knowledge diversity? Does the creation of a culture of ideas in common among a population raise or lower productivity? What role is played by interregional interaction among researchers? For illustrative purposes, suppose that there are locations, or cities, where R & D can take place. R & D workers collaborating in different cities face a discount in their productivity due to distance. There is public knowledge transmission, for example through patenting, in a city, but inter-city public knowledge transmission is tempered by distance. To get the intuition across, suppose that there are two separate cities, with researchers or knowledge workers living in each and immobile in terms of their residence. At the beginning, there is no interaction between the two cities, in that the researchers in each city work with others only in that city, and there is public knowledge transmission, for example through patenting, that occurs only within each city but not between them. With this structure and a relatively effective public knowledge transmission mechanism, the path of knowledge production actually realized, called the equilibrium path, involves a pattern of work with people rapidly changing partners located in the same city. The cities drift apart in terms of their ideas held in common. In other words, they develop different cultures. Within each city, people are quite homogeneous relative to the most productive state. Suppose now that interaction between cities is opened, in the sense that researchers can work with those in the other city, and public knowledge is transmitted between locations, but at a discount relative to public transmission within a city. On the new equilibrium path, it is never best to work exclusively with people in one location. Productivity and income rise.
Oliver Falck (Ifo Institute for Economic Research), Michael Fritsch (University of Jena, School of Economics and Business Administration), Stephan Heblich* (Max Planck Institute of Economics)
2. Bohemians, Human Capital, and Regional Economic Growth
An emerging literature on the geography of bohemians argues that a region’s lifestyle and cultural amenities explain, at least partly, the unequal distribution of highly qualified people across space, which in turn, explains geographic disparities in economic growth. However, to date, there has been little or no empirical attempt to identify a causal relation. To identify the causal impact of bohemians on economic growth, we apply an instrumental variable approach using as an exogenous instrument the geographic distribution of bohemians prior to the Industrial Revolution in Germany. This distribution was primary the result of competition for prestige between courts and not of economic prosperity. Accordingly, the instrument is independent of today’s regional economic development. Focusing on the concentration of highly skilled people today that is explained by the proximity to exogenous concentrations of bohemians, the observed local average treatment effect supports the hypothesis of a positive impact of bohemians on regional economic development.
Luis Cabral (New York University), Zhu Wang* (Federal Reserve Bank of Kansas City), Yi Xu (New York University)
3. Network Effects and Geographic Concentration of Industry
This paper provides a theory of “family network” in addition to other “local externalities” to explain the geographic concentration of industry. For many industries, one most important source of entrants is spinoffs, who typically locate near parent firms and benefit from knowledge linkage and business relation within the family network. Using a unique dataset of US automobile industry in its early years, we identify six historically important production centers and sixty spinoff families. Our analysis disentangles the effect of “family network” from other “local externalities,” and show that the geographic concentration of US automobile industry was jointly determined by the spinoff families, the influence from related industries and the size of local economy. Meanwhile, we found that the size of local automobile industry has a negative effect on firm entry and survival, which suggests the existence of “local congestion.”
Lall Ramrattan* (UC Berkeley Extension), Michael Szenberg (Pace University, Lubin School of Business)
4. The Paradoxical Behavior of Regions in Response to Free Trade and Growth in the Post- Cold War Global Economy
Chair: Lall Ramrattan
Discussants: 1. Lall Ramrattan, 2. Marcus Berliant, 3. Stephan Heblich, 4. Zhu Wang
Christian A. L. Hilber* (London School of Economics), Wouter Vermeulen (CPB Netherlands Bureau for Economic Policy Analysis & VU University)
1. Supply Constraints and House Price Dynamics: Panel Data Evidence from England
We explore the impact of various types of supply constraints (regulatory, physical and infrastructure related) on house price dynamics in England. We hypothesize that house prices react more strongly to demand shocks in more constrained locations. We test this hypothesis using a panel of house price and income data at the local planning authority-level, ranging from 1974 to 2008. Using this panel in conjunction with unique data on various types of housing supply constraints, allows us to disentangle the impact of regulatory constraints from other types of supply constraints. We address endogeneity concerns related to the regulatory constraints measures using an instrumental variable-technique. Preliminary findings of long-run relationships suggest that the permanent reaction of house prices to income shocks is much greater in locations with low rates of approval of residential developments. Physical and infrastructure related constraints appear to have limited impact.
Jos Van Ommeren* (VU University), Marnix Koopman (Delft University of Technology )
2. Rent control and the value of apartment characteristics to households
The application of standard, hedonic price approaches to obtain estimates of the households’ value of apartment characteristics is invalid when rents are controlled. We introduce and apply an alternative method that allows us to estimate renters' marginal willingness to pay for apartment characteristics, based on residential mobility in the rent-controlled, social-housing, rental market. We focus on the marginal willingness to pay for apartment characteristics such as apartment quality, the presence of an elevator and (unobserved) local amenities. We find that, on average, households place monetary value on qualities which are close to the housing associations' costs of providing quality, suggesting that, despite inefficient pricing of rental quality, the market outcome for rental quality is efficient. However, we find that the households’ monetary value of local amenities is substantially less than the costs of providing these amenities.
John Chamblee (University of Georgia), Peter Colwell (University of Illinois), Carolyn Dehring* (University of Georgia), Craig Depken (University of North Carolina Charlotte)
3. The Value of Conservation Restrictions
Private conservation activity in the United States has increased dramatically in recent years due to increases in household income, public awareness, and recreation demand. Growth in conservation activity has also been fueled by federal and state subsidization of conservation land grants. Estimates of the cost to state and federal treasuries for 2001-2003 conservation easement donation activity are between $5.2 and $18.2 billion. Current tax policy with regard to conservation restrictions is not without problems. For example, qualified donations of easements must be made in perpetuity, severely impeding the future transferability of land. Moreover, tax benefits likely influence conservation decisions, independent of the inherent conservation worth of the donated land. Finally, donation activity can result in a collection of spatially fragmented parcels which may yield less conservation value than a large tract. This paper contributes to policy debate by examining the pricing of properties burdened with conservation restrictions and the pricing of properties located near newly conserved land. The central hypothesis of this paper is that conservation restrictions increase the value of nearby land because the restriction reduces uncertainty regarding future development, and hence assures the permanency of the existing amenity. We investigate the effects of 64 conservation restrictions involving 6 different land trusts and occurring over a 12-year period on property values in Buncombe County, North Carolina. Because conservation activity is spatially concentrated, we identify clusters of conservation activity and relate price effects to aggregate conserved lands within clusters. The model allows the centroid of conservation activity to change though time within clusters. Price effects are assumed to be declining with distance to parcels on which there are restrictions. Preliminary results suggest parcels encumbered with conservation restrictions sell for a 20% discount, and that land prices increase by 1% every 100 meters closer the parcel is to newly conserved land.
Andrew Haughwout* (Federal Reserve Bank of New York)
4. Vacant Land Price Trends in the US
We use a new dataset of vacant land transactions to examine spatial and temporal patterns in land prices over the period 1999-mid-2009. This period is of particular interest because it witnessed a substantial run-up in housing prices, followed by a sharp retreat. Our data provide detailed information on the geographic location, physical characteristics and expected use of each plot, allowing us to produce estimates of, for example, the value per square foot of platted but vacant residential lots at each location at each point in time. We obtain several results useful to researchers and policy makers. First, increases in housing prices were accompanied, if not driven, by sharp rises in the value of land after 2003. Beginning in 2005, these land price increases began to reverse. In many MSAs, land prices are now back to their pre-boom levels, providing preliminary evidence that some housing markets may have returned to their equilibrium levels. Second, the boom in residential land prices was generally accompanied by less-sharp increases in commercial and industrial land values. Third, essentially all cities experienced some cyclicality in land prices over this period, but the temporal dynamics of land price changes are widely variable, with some MSAs experiencing a modest boom/bust cycle relative to others. Finally, the importance of proximity to city centers varies substantially over MSAs. In some cities we observe sharp declines in land value as distance to the center increases, while in others we identify virtually no spatial gradient.
Chair: Andrew Haughwout
Discussants: 1. Andrew Haughwout, 2. Christian A. L. Hilber, 3. Jos Van Ommeren, 4. Carolyn Dehring