ECON 1800 Midterm

Case Study: Latin American Cities What is the relationship between Latin American cities and urbanization?

"Cities without growth" Urbanization without industrialization or development

DiPasquale-Wheaton 4-Quadrant Model (goal + sectors)

Goal •Integrate different sectors of RE market in a single framework •Allow analysis of effects of changes on equilibrium Sectors •Space (property) market - users of real estate •Asset market - investors in real estate •New construction - real estate development •Stock-adjustment - how the stock changes (time & durability) There are four markets that adjust together: Market for (living) space: rents are determined by demand■ Our model nests both an open and a closed city■ But primary case is 'half-open half-closed'○ Asset market: investors buy houses○ Construction market: developers observe prices, decide how much to build○ The `nature market': nature takes its toll, and given new construction decides total housing stock● Curves are set in time, but location on them can change● We visually trace effects over time○ Often converging to a new steady state Section 2, Slides 9 + 13

T/F Laws are stricter in poor countries, practices are better in rich countries

T Stronger laws --> better practices --> better integrity of process --> better quality of product Laws alone don't improve quality of product

T/F The Unhappiness over Policing and Incarceration

T The incomplete triumph of urban safety

T/F Successful cities are becoming permanently unaffordable.

T The triumph of insiders over outsiders

What is the key difference between AMM and Stock Flow?

ADJUSTMENT ● In the AMM model, everything is determined simultaneously ○ Rents are determined by consumers' demand ○ Demand determined by commuting costs ○ Everything is static ○ Power in simplicity - useful for intuition, quantifying, testing, and comparative statics ● Developers are assumed to have constructed the houses instantly ○ Build up to the point rents equal cost. ○ Reality is more dynamic and inter-dependent ○ Housing prices → construction → houses (slowly) ● The Stock-Flow model is a stylistic model of adjustment o Endogenize investor and developer behavior o Allows for dynamic adjustment where all variables affect one another

Video: Supply

All homes are identical Single family home Build enough homes for buyers Upward sloping supply curve Number of homes (X), cost of supply (Y) All the ways add extra living unit High rises Second levels Number of units (X), cost of supply (Y) Supply curve for urban space Costs more to build in Gotham, SC shift up; vice versa

Which model looks at interdependent factors like Central vs peripheral, Access to transportation, House characteristics, Total population, City size, and Supply of land and construction to determine housing prices?

Alonso (1964)-Muth (1969)-Mills (1967), "AMM" for short.

Video: Congestion Externalities and City Size

Amenities Agglomeration economies Suburbs lack these amenities Amenities increase w/ city size Or they could get worse w/ population Negative externalities Disease, congestion Better governed city has higher prices

Land markets tend to naturally separate different households or land uses spatially. Give an example of two such households. How will they be located throughout the city?

Consider 2 different types of households - Group 1 really dislikes commuting perhaps a higher value of time - Group 2 is much less bothered by commuting - k1 > k2 Location equilibrium involves giving all the best locations [closest] to the group that values it most (1). Highest use implies that this group is willing to pay more for all houses from 0 to m. Group 2 gets houses from m to b.

Video: The Imperial City Model

Dictators - bloated capital cities? As long as capital cities are more dangerous to dictators... they will direct disproportionate resources there - capital cities grow large

AMM Model --> Imperial

Emperor, appease people, uprising/rioiting, bread dole Lecture 5, Slides 22-23

T/F Infrastructure projects in the US are NOT expensive

F

Describe what happens in the following situations (AMM Model): What happens when the edge of the city is farther from the center? What happens when commuting costs per mile increase? What happens if rent per acre of agricultural land increases?

Housing and land rent increase at all interior locations

Define durability

Old units good substitutes for new Convertibility of existing units—upward conversion, downward conversion

The spatial equilibrium *Sandra Black (1999) connection

Sandra Black Attendance districts Two towns, one good and bad, homes are exactly the same One home with better school Higher cost Higher amenities in one area are offset by better prices If we were all equal but different amenities, wages, locations, etc. High wages, amenities - sky high prices; vice versa If wages are high, controlling for prices, low amenity location High real wages, or wages controlling for prices, amenities were low Spatial equilibrium concept - low wages, better amenities As a region's government does a better job of controlling negative externalities, real wages will fall b/c prices will move more quickly than wages Assumptions don't hold - people aren't perfectly mobile or identical Housing prices can move quickly even if size of city stays constant Powerful tool for understanding urban world

What happens in the Stock Flow model if housing demand is inelastic?

Section 2, Slide 24-25

America's First Subway

The Tremont Street Subway (today the green line) opened in 1898, and it is the third oldest operating subway line in the world. • Originally the West End Railway - incorporated into the local transport monopoly (Boston Elevated Railway - a J.P. Morgan firm). • The MBTA takes it public in 1947 (private firms were losing money).

Why didn't telephones and computers kill urban knowledge industries?

Urban spaces spread knowledge offices

What is a reservation utility?

difference between wages earned in city 1 and wages earned elsewhere

What is a 15-minute city?

is an urban planning concept in which most daily necessities and services, such as work, shopping, education, healthcare, and leisure can be easily reached by a 15-minute walk or bike ride from any point in the city.[2] This approach aims to reduce car dependency, promote healthy and sustainable living, and improve the overall quality of life for city dwellers. For the poor, 15 minute cities mean segregation We need integration

What's the effect of temperatures on cities?

lower levels of employment

Give an example of a disagglomeration force

negative effects of people locating together that drive people to locate apart (e.g. congestion)

Give an example of an agglomeration force

positive effects of people locating in the same place (learning from each other, economies of scale) There must be some agglomeration force in the world. Why? Existence of cities Urban wage premium suggests strong agglomeration forces. Some alternatives: - Selection - "ex-ante" more productive people sort into cities - Reverse causality - intrinsically more productive places (ports, mines) lure people to them - Another causal inference problem: what is the causal effect of density (or city size) on e.g. wages?

What is the term for when a city dweller can earn a net income elsewhere? (income net housing and transportation costs)

reservation locale

Case Study: Bangalore

tech, knowledge, education --> growth

Two core facets of industrialization

textiles and power. • The textiles story is tortuous - full of examples of ideas being stolen from people around them - but not all that urban. • The power story is deeply urban and feels somewhat more modern. • Together, they made mankind wealthy for the first time in history. • They also helped make cities - such as Birmingham, Manchester, Lowell (MA) and Chicago. • Agglomeration ended up being the partner of industrialization.

How did Boston acquire more land?

Boston increased land area through annexation and landfill in the 19th and early 20th centuries

T/F Cities also grow the size of firms and establishments, but as firm size grows, employment growth slows

T Mining and industrial structures also really influence firm size

Case Study: Baghdad and House of Wisdom

- King made old Baghdad an intellectual center for academia

Why are fines a bad idea?

•fines --> inspectors may extract bribes. •In a weak legal environment, there will be no fines paid only bribes. •This is "efficient" if unpleasant as long as only the guilty pay bribes. •In a very weak legal environment, inspectors also impose bribes on the innocent. the higher the GDP per capita (the wealthier a nation is), the lower the percentage of treating the poor unfairly is (legal disadvantage of the poor) The NYC Tenement Acts of 1867, 1879 and 1901: Ventilation, Sewers and Fire Escapes - started to use inspectors because of very corrupt cops

Why are subsidies a bad idea?

•subsidies: (1) artificially induces people to come to this city, and (2) subsidization creates great scope for waste. •An agreement that we will just subsidize water or sewers or public transit means that there is little incentive to cut costs.

What does recent literature say about the AMM Model?

●Hausman et al. (2023; unpublished) "Urban Pull: The Role of Urban Amenities and Employment" ○Use data from 'Waze' on where people drive to during leisure hours ○Distance from amenities such as restaurants and nightlife predicts prices as much as distance from employment ●Gupta et al. (2021) "Flattening the Curve: Pandemic-Induced Revaluation of Urban Real Estate" ○Covid flattened the bid-rent curves of US cities ○Curves are flatter where work-from-home is more popular ○Rent curves flattened more than house prices. Any ideas why? ●Rosenthal et al. (2021) "Are City Centers Losing their Appeal? Commercial Real Estate, Urban Spatial Structure, and Covid-19" ○Similar to Gupta et al. (2021), but for commercial real estate - rents fall by 2.5% and gradients by 15%

Specialization and Scale

- There is a training cost to learn how to cut physics and how to teach economics. - as the scale of people increases, the easier it is to specialize in certain areas - Similar to the old idea of a one room schoolhouse.

Case Study: Blight of Baltimore

- around 8% of Baltimore's housing stock is just unfit for habitation - just sitting empty lots

The Independent Public Model

- at its best it allows flexibility of wages and incentives - can attract a top person who wants the fame and recognition and who can really deliver services - downside of the moses model is that the person is not democratically accountable - problem with parastatals in subsaharan africa is that benefits of serving political master is much higher than impressing general public

Case Study: Brazil and Mexico City

- became 50% urbanized in the 1960s - radically increased MC's agricultural productivity

Case Study: Steel in PA vs. Garment in NY

- big coal mining industry in pennsylvania led to more salaried people - garment district (small businesses) led to more entrepreneurs - all of this leads to establishment size being negatively correlated with employment growth

Trend toward urban residence

- big shifts in Asia and Africa toward urbanization - 20-60% urban in upper middle income countries - substantial amounts of urbanization in poor cities, but we need to deal with climate change

Case Study: NYC Street Cleaning

- brought street cleaning in house, privatize

A.E. Lefcourt: Clothes to Banking and Building

- built more skyscrapers in 1920 than anyone else - started new garment district, had a modern building - then opened a bank

According to the World Bank Procurement Survey, what's the relationship between stricter laws and quality of product in poor countries?

- consulted with professionals in each country - found that laws are stricter in poor countries - practices are better in rich countries - stronger laws --> better practices - better practices --> better integrity of process - integrity of process --> quality of product - BUT laws don't improve quality of product

Case Study: Madrid and Sevilla

- denser, larger city of Madrid not only has higher wages but exhibits higher wage growth for any levels of experience - moving to a new city after spending years in another city starts you off at a higher wage - shows that learning accumulates from cities! proximity matters!

Welfare Economics of City Bigness

- downsides of density, curve shifts down with good government - max size of government is mediated by quality of the state - lecture 11 slide 12

When interpreting coefficients...

- functional form (linear? log? (log-log, log-level, etc.) exponential?) - always include "holding XYZ constant" - dummy variable? - interaction term? (● Rent changes at B 1 on distance in pre-pandemic● Rent changes at B 1 + B 3 on distance in post-pademic● B3 is the change between pre- and post-pandemic) - categorical? binary? - linear transformation using logs Section 3, Slide 21 (log interpretations) 1) Is my estimation accurate? (statistical significance, errors, confidence) 2) Is my estimation explaining variations in rents? (R^2 - how much of the variation does our model capture?; model fit and why?) Fixed effects vs averages (PSET #3) Correlation

historical mining deposits and industrial structures

- historical large mining deposit towns are used as an instrument for big firm size, finding lower growth still

A Tale of Two Technologies

- in India, there are vans that wait until there are enough people in one and drop them off - metrocars that are pretty empty - shows how the government was catering to two different groups

Facts about federal funding for highways

- local and state government spends the most on transportation systems ($109 billion) - federal and state governments rely heavily on gas tax-revenue to fund highways - federal highway trust fund faces growing shortfalls - gas tax revenue has fallen over the past decade, in trouble!

US transportation patterns

- more boomers driving than zoomers - people taking fewer trips that are taking longer - transit riders willing to pay 80% of wage to decrease access time and only 50% of wage to decrease in vehicle time

Cambridge Zoning Regulations

- most of central cambridge is restricted to multi-family residential zoning permits - as we go further out, more for single-family residential or industrial - correlates with higher percentage of black people living further out from central Cambridge

Why is the price gradient steeper than the rent gradient?

- rent/square foot takes into account space - housing units smaller at center - square footage an OVB

Relationship between economic growth and firm size

- smaller firms grow faster - cities with larger establishment or firm sizes experience lower employment growth - could be omitted variables like pro-business institutions that allow lots of little startups and employment growth

Samuel Goldwyn

- started as a gloves salesman - started MGM, entrepreneurial accomplishments benefit the city

Incentives Matter: Metering and Water Supply Problems

- unmetered people still have to pay regardless - strong relationships between supply issues and metered connections - strong connection between people that are metered and supply issues

Main ideas about Urbanization and Agricultural Productivity

- used country size as a proxy for open/closed - in an open economy, there is more trade, local productivity is less important in predicting urbanization - more closed the economy is (bigger the country), more linked productivity si with urbanization

Glaeser's Variant on Hart/Schleifer/Vishny Model regarding public vs private entities and corruption

-for $100,000 in bribes and effort, comapny can extract $200,000 in public value - public entity doesn't pay bribes since they don't keep the money -private entity will pay the bribes and extract rents from voters - nonprofit might not (weaker incentives)

Dakota and Manhattan House

-used to be very isolated, people didn't really care about them - now there are building structures all around them - History really does matter - Changes perceptions about what is valued about location

Hedonic regression linear analysis Applications to redevelopment

1). Linear: effect of a one unit increase in the independent variable on the dependent variable, P 2). Log Linear: percentage change in the dependent variable, P, from a unit increase in the independent variable 3). Log Log: percentage change in the dependent variable from a one percentage point increase in the independent variable. •Hedonic model permit valuation of structure attributes, amenities of location, and even the cost of regulation. •Getting the specification right requires careful consideration of what can be measured with the data available and what cannot be observed that could influence the results. •Redevelopment occurs when the value of land developed optimally exceeds the value of existing use plus demolition costs

Plagues: Athens

5th century athens was flourishing First well documented plague Spartan army kept out by athens walls Pelopennesian coastline Cities are vulnerable to disease because of 2 reasons: Nodes on travels of trade // Ports of entry for people, goods, diseases People are crammed together in them Governance determines what dies, NOT magnitude Capacity to have a civil response When plague hits roman empire, does very little to strength of roman empire... but next plague when governance was much weaker, was terrible the impact Mega-disaster 541-542 Reconquer north africa (bread basket) // black death strikes constantinople

Rosen-Roback Model

Adds amenities + externalities to AMM Wage + Amenities − Costs = constant w +A− (R(d) + kd)= Ũ Welfare = ln(Net Income) + Amenities = constant - amenities and income substitutes one-for-one; total income does not matter - net income could be squared --> different functional form --> reflect cheaper groceries (Cost = c + a × N^½) Net Income = Wage − Costs Welfare has to be the same at both cities Recent literature: ●Albouy et al. (2016) - use a Rosen-Roback model and public data to estimate: ○Land rents ○Amenities ○Productivity differences ○Federal transfers ●Chay & Greenstone (2005) - use the Rosen-Roback Framework to estimate the negative amenities from pollution ●Diamond (2016) - Develops a Rosen-Roback model with differeng productivity and amenities by skill group ○Shows endogenous amenities fueled separation by education, and furthered inequality ●Koşar, Ransom, ven der Klaauw (2022) ○Quantify people's attachment and perceived moving costs, finding substantial heterogeneity

AMM Solution

Agents earn w and get utility from consuming 'g' U(d) = g w = g + R(d) + kd Spatial equilibrium requires U(d) = Ũ (same for all locations), agents bid for houses until rents & commuting costs offset each other, otherwise agents have incentives to move R(d) = w − Ũ − kd R(d) = R(0) − kd This is the relative value of land and housing across different locations in a city, determined by demand. Rents start high at center and drop towards the periphery. Developers build houses from center to periphery, until rent income drops to the costs of the house ○ annual opportunity cost of land, r (ex. income for farming), called alternative value ○ (annualized) construction cost of building house, c Construction ends at distance b (called the boundary of city) R(d = b) = rq + c Combine supply and demand to pin down R(0): R(0) − kb = R(d = b) = rq + c ⇒ R(d) = rq + c − k(d − b)

Graphically represent the effect of adding a factory to a big town

Agglomerate if Cost of Factory=C>Shipping Costs=F*T • This is battle between saving shipping costs (from multiple factories) and reducing the cost of multiple factories. • Dispersal is more likely if the fixed costs are lower, or if transport costs are higher, or if there are more farmers in the other town. Cyrus McCormick relocates his reaper factory to Chicago from VA to be closer to farmers Multiple equilibria Notice that I needed something non-linear (the commute technology) to make this work. • A small urban edge can pull in the first factory - but even this small edge pulls in the second industry - and a third and so on. • Identical places can become highly non-identical because of agglomeration. Lecture 7, Slide 42

What does it mean for a city to be "open" in AMM?

An open city is open to migration, so that utility, Ũ, in this city must equal to that in other cities. Here assumed that agents only care about total rent R(d) of their houses, not housing areas. This is the theory of compensating differentials, but also between cities!

Demographic Trends and Road Roughness

As income increases, road roughness decreases As the percentage Black increases, rough roughness increases Coastal america is worse than inland america Town level estimates → black vs white neighborhoods Roads closer to city center are worse Differences persist in towns Road repaving is terribly targeted (Chicago) No correlation between our measure of road roughness and whether it gets repaved or not

As land prices rise closer to the center, how will developers treat structure capital vs. land? (density is NOT fixed here)

As land prices rise closer to the center, expect developers to substitute structure capital for land—build taller buildings If structure is not fixed, households may pay more per square foot but rent smaller units If structure is not fixed, households may pay more per square foot but rent smaller units

What are the assumptions of the AMM Model?

Assumptions: Land at a given location is fixed, there is no way of adding more of it supply highly inelastic to price Locations are differentiated, and uniqueness → inelastic demand Employment is at a single center Workers commute distance, d, to the center along a straight line from their homes Commuting costs k dollars annually per mile Households are identical with a fixed number of commuters All housing units are identical at all locations; rent, R(d) varies by distance from the center Housing is provided on a fixed quantity of land per unit Housing is occupied by households who offer the highest rent and land goes to the use yielding highest rent People must be indifferent across space. If there is one type of person, they must be just as happy .5 miles out as 2 miles out

History of Boston (4 centuries)

Boston is founded in 1630 with 150 settlers. The big challenge is how to pay for imported manufactured goods. The big break is the Barbados famine, which begins the triangle trade. • English Manufactures Boston and Food South and Sugar England. The Colonial Model for Boston • New England exported to other colonies • 73 percent to the Southern Colonies and Caribbean (1770) • 13 percent to England • Goods were basic commodities • 35 percent is fish (to West Indies 1770) • 32 percent livestock • 21 percent woodstock Boston's Mid-18th Century Crisis • Boston pioneers the triangular trade model of basic goods south, but • New York has a better port • Pennsylvania has better farmland • Both have better rivers and hence better access to the hinterland. • Both ports soon pass Boston, and the city stagnates between 1740 and 1790. The 19th Century Reinvention • But after 1790, Boston begins to grow again. Reinvention Once Again • The age of steam killed off Boston's sail specific human capital, and the city lost its great maritime advantage. • The Irish were the last gift of the sea. • Over the 1840-1920 period, Boston would continue to boom- as did all major cities. • Manufacturing replaced maritime. • Improvements in engine technology helped the city in two ways • Freed Manufacturing form river power • Created Rail Networks Boston's has grown and then receded a bit in 20th century and now on uptick again Boston's growth was pretty large share of US pop in 1800s-early 1900s, then declined

A Tale of Two Suburbs

Brookline, Wellesley

Historical example: NYC Garments vs Pittsburgh Steel

Cheap transport killed this industry Agglomeration NYC --> entrepreneurs Pittsburgh --> led to salaried Chinitz Effect -- "My feeling is that you do not breed as many entrepreneurs per capita in families allied with steel as you do in families allied with apparel, using these two industries for illustrative purposes only. The son of a salaried executive is less likely to be sensitive to opportunities wholly unrelated to his father's field than the son of an independent entrepreneur..."

Chetty, Hendren, and Katz (2016)

Chetty, Hendren, and Katz (2016) revisit the MTO data to examine the impact on children who were young (<13) at time of RA. They test 2 hypotheses: •Does moving to better neighborhoods (lower poverty) when young result in better economic outcomes as adults •Do gains from moving to a better neighborhood decline as age at time of move increases These questions could not be addressed by previous researchers because the young children had not yet reached adulthood. •Largely confirm the results from previous authors: no economic impact of moving to low poverty areas for adults (at RA) and somewhat negative impact on economic outcomes for older children (at RA) •First research examining the impact of moving to better neighborhoods on younger children (<13 at RA) •Combining MTO data with tax records, authors assess the impact of exposure to better neighborhoods as young children on their economic status as adults. Compared with the control group, children <13 in the experimental group: •Had earnings as adults that were 31% higher •Were more likely to attend college (and better colleges) •Were more likely to live in lower poverty neighborhoods as adults •Were less likely to be single parents •Neighborhood choice is a complicated decision influenced by neighborhood and family characteristics. Measuring those characteristics and the causal relationships is challenging. •Isolating the impact of a specific neighborhood attribute can be difficult due to unobserved neighborhood characteristics. •Data required to accurately measure neighborhoods effects are expensive to collect. •Identifying the impacts of neighborhood on individual outcomes can take a long time. Patience required! Customized search assistance increased landlord engagement short-term financial assistance

Video: Barry Bloom on Disease in the Developing World

Cities → wealth + poverty Inequality in city and disease Barrio, beyond urban core → abject poverty Highly susceptible to infectious diseases, suffer terrible toll TB in Peru → poorest areas Right outside the center of the cities No sanitaton, no cleaning, no clinics for treatment Can't get on a bus to get help, no means Partial response doesn't really cure anybody or stop disease... disease persists and grows → remember when we don't help these people → aid, assistance, public health, modern medicine, epidemiology → resevoir of diseases that will / do affect us → will back come to us Water borne diseases Antibiotics → people die less often Create terrible antibiotic resistant disease that run risk to everyone Bangladesh → Brock → rising water, poverty, climate change → mix salt solution to replenish but knowledge infrastructure NOT in Haiti → persists Disruption, hurricane, earthquake, poor command and control, can't teach people how to care from themselves → disaster, death

Plagues: Early 20th Century NYC

City's mortality rate sharply dropped with the provision of clean water in the 19th century Yellow fever // africa → caribbean → northeast cities Overall damage from disease not terrible Important public health investments Two theories Contagion → spreading from person to person → quarantine Ineffective Miasma theory → coming out of the ground / not biological → drain the swamp, eliminate the large amounts of water → fought mosquitos and other Public water system / 1790s Alexander Hamilton-Burr failure NYC 1842 - aqueduct is built in NYC Cholera, typhus We forgot how deadly cities could be COVID is airborne, strongly centered in cities Tallest buildings Following people's mobility... restricting trips outside the home The majority of people with advanced degrees were working remotely, death rates higher for poorer americans (w/out diploma or college degree) → working outside home Death rates across cities by education, incredibly negative relationship... very high among poorest Incentives and infrastructure providing clean water conquered pestilence in NYC

Video: Paris -- Impressionism and Cultural Exchange

Cityscapes Paris was booming Beautiful subject Living force that brought them together Western civilization

Video - Kaplan on Climate Change Adaptation, BlackRock

Climate change → decisions about where to invest ESG → environmental social governance Taking a lot of focus Environmentally Carbon emissions, reducing Blackstone, Real estate Targeting 15% reduction from controlled investment, achieving Solar panels LED lights Reducing waste coming off of the properties Great global citizens, doing what's right for world and investment Increasingly what tenants and investors want for buildings Dedicated ESG team Are there places we won't invest in b/c of climate change... worry about extreme weather? Insure properties, reflected in costs Property type → rising sea level Beachfront hotel → supply and demand → hardest place to add supply, strongest demand → pricing power Global, all over the world Big investor in beachfront hotels

Who said this quote? "I regard the growth of cities as an evil thing, unfortunate for mankind and the world"

Gandhi, anti-urban bias

If a developer has the choice between building a one-story building and a multi-story building, what will he do? Solve for open and closed city (steps)

Developer chooses whichever with higher profit pi 1(d) = R(d) − c − qr pi H(d) = H × R(d) − H × c − Z − qr Choose H-story building wherever pi H(d) - pi 1(d) (H − 1) × R(d) − (H − 1) × c − Z ≥ 0 Increasing in R(d) → high buildings at city center, then transition at some d* Section 1, Slide 25 (Slide 26 for graphical representation)

Three tools to better understand estimates and causality Try evaluating for bias and suggesting a solution for Black 1999 and Edin, Fredriksson, Aslund 2003 and MTO (Chetty, Hendren, Katz and others)

Direction of bias (under or overestimate, omitted variables, signing the bias, lower/upper bound) Model Interpretation Causal Inference (Omitted variable bias, Selection/sorting, Reverse causality) - Control for confounding variables - "Natural experiments" create "as-if" randomization - Randomized control trials

Renaissance paintings

Donatello: Base on Orsanmichele (1415-1417) Donatello: Feast of Herod, Siena (1427) Masaccio's Brancacci Chapel (1425) Masaccio's Trinity:Santa MariaNovella 1427 Fra Filippo Lippi:Annunciation 1440 Sandro Botticelli: Primavera 1482 Cities were a place where people could come together, share ideas, and make things. Art and creativity flourished. Take ideas from each others. Painters would study other painters, inspiration. Cities foster learning from each other.

Video: Moving to Opportunity

Economic mobility → kid in bottom gets to top percentile Depends on where kid grows up, rates of upward mobility differ Age at the time of moving matters Earlier the move, the better And of course, moving to a better location Three experimental groups Incentive families to move into better neighborhoods with lower poverty rates CMTO goes back to MTO 30% increase in earnings for children < 12 years old when moved

Edin, Fredriksson, Åslund (2003)

Edin, Fredriksson, Åslund (2003) asks what is the impact of living in immigrant communities (ethnic enclaves) on the economic success of immigrants? Ambiguous •Ethnic enclave is defined as neighborhood where the share of the ethnic group residing in the neighborhood is at least twice as large as the share of the ethnic group in the population. •Living in an enclave may result is slower acquisition of host country skills like language—negative impact •Living in an enclave may provide a valuable network with information on available jobs, services such as language classes, etc.—positive impact •Spatial mismatch: enclaves proximity to job opportunities •Human capital externalities—recent immigrants benefit from high skill enclaves Determining the net impact of ethnic enclaves on economic success is complicated •Residential location is an individual choice influenced by many factors that are largely unobserved •Labor market outcomes may also be impacted by those unobserved factors. Edin, Fredriksson, Åslund (2003) studied refugee immigrants in Sweden •Novel data to study the impact of enclaves on labor market outcomes •From 1985 to 1991, refugee immigrants were assigned their location by the Swedish government. Goal: decrease concentration of refugee populations in the major cities, particularly Stockholm •While the criteria for assignment was to include preferences of the immigrants and other factors, housing availability became deciding factor as the housing market was booming leaving few vacancies • •Some refugees were assigned to enclaves; others were not •With government assignment, the percent of total population in Stockholm who were immigrants fell 3 percentage points (36% to 33%) and rose in the north 2 percentage points (5% to 7%) •Estimate that living in enclaves improves labor market outcomes for less skilled immigrants by 13% •Those living in high quality ethnic enclaves (high income, high levels of self employment) gain more than those living in a low quality enclaves

Video: The Centrifugal 20th Century

Electricity, new transportation, waters/sewers/aqueducts... cities became better than rural by 1900 Exciting Economic opportunities Social life Triangle shirtwaist fire Suburbs, post WW2 White picket fences, trimmed laws, Buicks Rural electrification program Automobile became a great equalizer Federal investment in highways Low density travel > traffic in urban areas Radio, TV movies → entertainment everywhere Not just nickelodeons in city Centripedal → 19th century → pulling people into city centers Centrifugal → mid-20th century tech change → pushing people away Yelp, craiglist, etc. 21st century → takes advantage of density of cities to create highly effective market place Centripedal Digital - in rural + urban areas at once... but real pleasures of being with real people

How does the stock-flow model relate to the AMM model?

Financial market↓ → invest houses ↓ → housing prices↑ → construction↑ → rents↓.● How does that change AMM: R(d) = R(0) − kd ● k is fixed; R(0)↓

Video: Jay Walder on Congestion and Transit in London

First directly elected mayor of London 2000 → really influential Transportation was the number one issue in London Parliament was responsible for effective congestion pricing Use of bus system has actually grown in London Make the bus system work better - money and reduce competition Investment in bus lanes, and more buses Reallocate road space to buses and livable space Creating new revenue streams → directed back into transit system Efficiently using public space, and helping poor Londoners Equity and efficiency Wasn't perfect

Name 4 city entrepreneurs/innovators

Ford Madam CJ Walker A.E. Lefcourt Samuel Goldwyn / MGM

Why do hedonic models work?

Hedonic models build on similar intuition as AMM: price of each housing unit must compensate for its various attributes In AMM, those attributes were just the location advantage In a hedonic model, those attributes could be almost anything: number of bedrooms, number of bathrooms, whether the unit has cockroaches, quality of local school, etc. Intuition: to preserve spatial equilibrium differences across houses have to be priced to compensate for differences between them. Means we can break down prices into components and estimate their value

The Core Ideas of Agglomeration Economies (5)

Idea # 1: You choose location to reduce transportation costs. When people are fixed in space (farmers), this acts against agglomeration. When people can move, then this acts for agglomeration. • Idea # 2: Increasing returns (or fixed costs) at the firm level can be saved by locating in a single location instead of spreading out. • Idea # 3: With enough scale, shocks to employers or customers average out, making the world more predictable and productive. • Idea # 4: With enough customers, producers can specialize, meaning that they have to learn less about multiple products and can learn more about their primary product. • Idea # 5: In dense areas, ideas spread between people. Consequently, we become more productive when we are around people we can learn from.

What determines the prices of houses in AMM?

In equilibrium, prices must offset the relative value of different locations - if a location generates higher utility → must be more expensive The relative value of land (or housing) is determined only by "demand factors" - "theory of compensating differentials" - cheap/quick commute → expensive housing What determines overall price levels? - population size, conditions in other cities, total amount of land, price of construction - "Closed City" vs "Open City"

Sources of agglomeration

Increasing returns to scale at the firm level (fixed costs) Statistical returns to scale (labor market pooling 1) Specialization (labor market pooling 2) Learning / spread of ideas, Easier to learn from each other in close proximity Fundamentally, these are all about lower transportation costs - of goods, of people, of ideas.

Discuss two cities where agglomeration effects have been important to their historical development, and the factors that led those cities to benefit from agglomeration economies.

Industrial cities (Lowell, Manchester, Chicago) benefited from being close to rivers (Manchester/Lowell), or farmers (Chicago) and thus being where factories wanted to locate. NYC benefited from the triangle trade, its port, and statistical returns to scale (garment industry) that positioned it to take advantage of these agglomeration effects.

How did industrialization impact cities?

Industrialization ultimately meant the replacement of human craft with large machines + eventually those machines would leave the city. But in the 19th century, the larger issue was to ensure that there were enough workers and customers for the machines. This massive infrastructure couldn't be spread all around the countryside in small villages - it needed to be concentrated in one place. Hence mills tended to be anchors for cities. They also benefit from having a lot of activity around them hence the benefits of agglomeration. • Three benefits of agglomeration: reducing the costs of moving goods, people and ideas.

3 Fundamental Characteristics of Urban Land Markets

Land is more expensive at better locations and cheaper at less advantageous sites Where land is more expensive, land is developed more intensely—more structure capital per square foot of land. Buildings are taller. Land markets tend to naturally separate different households or land uses spatially

Examples of road technology

Large cities in the Roman empire were sustained by wheeled transport delivering food via road grids. Roads were built with deep roadbeds of crushed stone and sometimes topped with pavers. •The grand boulevards of Paris were paved with asphalt in the 1860s, the newest technology of the time. •First public transit in NYC was the 12-person omnibus. Poor quality roads led the owner to install rails •The Good Roads Movement led to creation of the U.S. Office of Road Inquiry (ORI) in the Department of Agriculture in 1893. The goal of the Good Roads Movement was a Federal role in road construction. •Federal aid for the construction of roads in the US began with the Federal Aid Road Act of 1916 signed by Woodrow Wilson. •Federal Aid Highway Act of 1956 mandated the construction of 41,000 miles of the Interstate Highway System with the federal government paying 90% of the costs.

Draw the Northwest Quadrant: Asset Market (valuation) and if Financial market doing worse; investors buy a lot of houses instead

Lecture 3 Section 2, Slide 19 •Investors buy and sell real estate •Price (P) paid by an investor depends on the rental income stream and the capitalization rate (i). P = R/i •Components of the cap rate are: •Long term interest rate in the economy •Expected growth in the rental income stream •Risk associated with the rental income stream •Risks vary with location (within a market and across markets), type of building •Liquidity premium •Tax treatment of real estate Building Quality Matters: Higher quality office buildings tend to have lower cap rates Location Matters: Suburban office buildings tend to have higher cap rates than CBD buildings Property type also matters

In the Asset Market, what is the impact of tax changes on cap rate and real estate prices? (graph)

Lecture 3, Slide 27

Draw the complete DiPasquale-Wheaton 4-Quadrant Diagram, as well as: Effect of Demand Growth in Space Market... LR Eq Effect of Demand Growth in Asset Market... LR Eq Effect of Increase in Construction Costs... LR Eq

Lecture 3, Slide 35, 38, 40, 42

Draw the Northeast Quadrant: Market for Space, and what happens when there is an increase in demand for space or an increase in rent

Lecture 3, Slides 15-16 Section 2, Slide 14 •Demand Curve Describes Space Occupied at a Given Rent •More space occupied as rent declines—downward sloping demand curve •Supply is fixed at existing stock, S* resulting in rent at R*

How to solve an AMM Model? (**critical**)

Lecture 4, Slides 60-63 Two Versions: Open City vs. Closed City. Solving For Skyscraper Zones • Two Versions: Open City vs. Closed City.• In both case, the critical element is that URBAN COSTS=HOUSING + TRANSPORT COSTS=THE SAME THING EVERYWHERE• Closed city means you fix the population - and then if the land per capita is fixed, you can solve for the city's edge (POP*SPACE/POP=pR2). • On the edge HOUSING + TRANSPORT COSTS = STRUCTURE COST + AGRICULTURAL LAND COSTS + COST OF COMMUTING at DISTANCE R.• Then to find costs everywhere = HOUSING COST ELSEWHERE = TOTAL COSTS ON THE EDGE - TRANSPORTATION COST ELSEWHERE• Consequently, housing costs are pinned down by transport costs elsewhere and total costs on the edge. • Open City means you fix the net earnings (earnings minus transport minus housing) in some other area - this is sometimes reservation utility. • You are given earnings in the city that you care about. • Then EARNINGS-HOUSING COST IN THE CITY=NET EARNINGS ELSEWHERE• Note that with closed city, you start and the edge and work in and in the open city, you start at the center and work out. Remember transport costs at the center equals zero. • Then HOUSING COST ELSEWHERE=HOUSING COST IN THE CENTER - TRANSPORTATION COSTS ELSEWHERE. • The edge of the city (R) is then determined so that HOUSING COSTS ELSEWHERE = STRUCTURE COSTS + AGRICULTURAL LAND VALUE. • Population then is determined by POP*SPACE/POP=pR2. • You have already how to calculate the price at which you switch from low rise to skyscrapers. Always start by calculating that first. • In the OPEN CITY MODEL, you are pretty much done, since the price as a function of distance from the city is independent of the city population. • Calculate an "S" which is the outer limit of the skyscraper zone. • The edge of the city R is as before. • To calculate total population, first calculate the population implied by POP*SPACE/POP=pR2. if the whole city lived in low rises. • Then add on the extra population implied by POP*SPACE/POP=pS2 for the skyscraper zone • In the CLOSED CITY MODEL, you need to figure out to make the number of homes add up to the fixed population size.• Let P* denote the price where you switch to skyscrapers (solve for this first). • Assume an "R" which is the edge of the city (this is algebra). • Price at R is Construction Cost + Agricultural Land Cost for Single Family Homes (call it P)• Price at any other point is P+(R-D)*Transport Costs/Mile• The skyscraper zone solves P+(R-S)*Transport Costs/Mile=P* to solve for S. • Then calculate the number of people who live in the city as a function of the city's edge (R), and the skyscraper zone start point (R), using POP*SPACE/POP=pR2. • This should give you a quadratic equation in R that you can solve using the quadratic formula.

Graphically represent urban-rural welfare

Lecture 7, Slide 43

Brunelleschi's Experiment

Linear perspective Brunelleschi used this technique in a famous experiment. With the help of mirrors, he sketched the Baptistery in perfect perspective. He mathematically calculated the scale of objects to appear within a painting, in order to make them look realistic.

Video: Ancient Mesopotamia

Looked similar/density BUT Where farmers lived (today = consumers) Leaving the cities and going to field and coming back Thick walls, retreat to at night Need neighbors Open spaces within homes → animals Enter through holes, very dense Same range of material culture No wealth inequality Egalitarianism Southern vs nother mesopotamia cluster Irrigation Rain-fed agriculture Ideological than economical Religion, divine Temple

Example of the infrastructure maintenance problem

Lusaka water - government allegedly connected people to water, but very high break rates - high complaints - non-bloody diarrhea cases increase with younger children - typhoid fever cases increase with older children - respiratory infections - measles Zoona activity (money sending/receiving) - to help bc less money being transferred with supply issues

Case Study: Manchester

Manchester: City of Cotton and Smoke • Look at Videos • Waterways: Irwell and Mersey are navigable by 1736 which brings access to Liverpool and the sea, Bridgewater canal connects to coal • Cotton joins wool and linen as early as 1600 - pure cotton in 1750 • Large commodities exchange (also important in Chicago) • Arkwright opens a mill in 1780 • Perhaps the largest industrial city in the world in 1830 • First intercity steam train (Manchester and Liverpool) 1830 • Lots of small mills (over 100) not a big three

Video: Congruence of supply and demand

Market equilibrium, where supply and demand meet Number of homes in each city, price of each home If prices are too high and supply exceeds demand, builders will notice and stop construction... of too low, builders will supply more If demand shifts up, prices will be higher and pop of city increases Elasticity of building supply Houston - very elastic supply → when demand increases, price goes up a little, but pop increases a lot London - very inelastic supply (vertical) → when demand increases, price goes up A LOT but pop stays constant Economies heat up, amenities boost, rising wages

Does selection overrule agglomeration in cities? What about reverse causality?

Migrants (Glaeser and Mar´e, 2001; Roca & Puga 2015), Can rule out selection - same person earns a higher wage when move to a city; lower wage when move out Wage premium accrues over time - suggests that learning is likely a component Soil quality (Combes, et al., 2010), Mining Deposit (Glaeser, Kerr, & Kerr 2015) Creates as-if random density distribution in France - allows us to rule out reverse causality for soil-related Opposite effect of mining related activity

Case Study: The Widener/Yerkes System

Monopoly on streetcars --> built Widener Library extract privileged access to roads for street cars monopolies, monopolies

Video: Agglomeration Economies and Urban Instability

Negative slope down → normal Upward → not If cross once, all good Cross twice → multiple equilibria What this means? Really big or really small city

"Invasion" Theory Burgess (1925)

Neighborhoods are more likely to improve when they are close to downtown and/or other neighborhoods perceived as safe

"Tipping" Theory Grodzins (1957), Schelling (1969)

Neighborhoods with better initial appearances experience larger positive improvement

Case Study: NYC (growth)

New York City's 200 Year Growth Epic • The city's industries are born of its harbor and the Hudson. • Sugar refining, apparel, printing and publishing, finance. • Transportation-related infrastructure was surely important, but no one thing (e.g. the Erie Canal) made the city (unlike Buffalo, NY). • Sugar refining was a product of the initial triangle trade. • This is an example of fixed costs and transport costs driving manufacturing • Early 19th century growth reflects larger ship sizes leading towards hub-and-spoke, instead of point-to-point, shipping. • Both packet ships and ready-to-wear apparel are examples of statistical returns to scale. NYC has grown up down up down New York and Statistical Returns to Scale • 1817: Jeremiah Thompson (Yorkshire Wool Man) and Isaiah Wright (New York Cotton Merchant) found the Black Ball Line • This is the first regular packet service that sailed on a fixed schedule. • This is only possible because NYC scale has become large enough so that it is unlikely that you will travel with an empty hull. • Ready-to-wear clothing - starting with the War of 1812. Brooks Brothers is frequently cited as a pioneer. • This garment industry becomes the largest sector in NYC • Also benefits from vast home market and ability to test ideas on customers. • Application # 1: Shocks to firms or industries • Its best if you can move across industries and shocks are independent • Application # 2: Uncertainty about your own interests • You can try a lot of jobs in New York (acting vs. table waiting), less in Hershey • Application # 3: Making ready-made clothing • You are hoping that you have roughly the right number of each size • Application # 4: Running a boat on a fixed schedule • You are taking a risk that enough people will show up by that day. The Division of Labor is Limited by the Extent of the Market: Adam Smith and Gary Becker NY manufacturing employment decreased significantly over time Immigration increased to the US Manufacturing wages increased in NY, US

What is the impact of new technology on a city in the AMM model?

New technologies may cause the demand for being at the city center to go up or down. • This will generally cause the intercept of the curve to go up and leave the slope alone. • New transportation technologies can just make commuting costs go down. • This will cause the slope to flatten but will leave the intercept alone. • Historically, must technologies have required fixed costs to make costs per mile fall. • Omnibuses to Streetcars to Railroads to Cars • This causes multiple zones with different slopes within cities. • Changes in construction technology, like the skyscraper. • Continuous density vs. fixed costs of building up. • Fixed costs again create zones, but the zone is for density not for cost of living. • What will Zoom and COVID do to the future of cities? • COVID could be (1) a reduction in demand for being in the city center or (2) an increase in demand for land. • Zoom reduces the commute cost if it means going in 3 days per week. If we stop commuting, rate of rent declines as distance to center rises

Edward Glaeser, Scott Kominers, Michael Luca and Nikhil Naik, 2018. "Big Data in Big Cities."

New, "big data" sources allow measurement of city characteristics and outcome variables at higher collection frequencies and more granular geographic scales than ever before. However, big data will not solve large urban social science questions on its own. Big urban data has the most value for the study of cities when it allows measurement of the previously opaque, or when it can be coupled with exogenous shocks to people or place. We describe a number of new urban data sources and illustrate how they can be used to improve the study and function of cities. We first show how Google Street View images can be used to predict income in New York City, suggesting that similar imagery data can be used to map wealth and poverty in previously unmeasured areas of the developing world. We then discuss how survey techniques can be improved to better measure willingness to pay for urban amenities. Finally, we explain how Internet data is being used to improve the quality of city services.

Video: Steven Poftak on the MBTA

Not super reliable, trains don't show up on time/on schedule Some train cars are very old Bringing in new cars, upgrade track and signal Benefit customers, bring marginal customers into system Drive new ridership, benefit existing ridership Fares were raised, funding from state and internal funds Capacity to borrow... to fund certain projects Dedicated state funding Bus stations, intermodal stations Fixed rail system Rail - construction cost, space Late night options Service workers? Nightlife in Boston? Constrains time to work if end at 1am and start at 5am

(AMM) Distance to the border is determined by: (formula)

Number of households in the city, n Density of housing, q Topography of the area πb^2 = nq Distance from the center of the city to the border grows with increases in n, decreases in density (increase q), and greater limits on developable land due to topography or other constraints. Circular city with radial travel to a single center. Let v be the fraction of the circumference of land that is developable. Beyond the city edge (b) is vacant agricultural land (or water) Assume v = .6 b = (nq/πv)^(1/2)

Imperial City Model

Observation: in pre-modern time, a nation's population tends to concentrate in one city (imperial city). Why?○ Rome, London & Paris● Ades and Glaeser (1995)○ emperors live in the capital city; easily overthrown by nearby residents○ extract resources from rural hinterland and feed the urbanites○ → urban in-migration● Think of AMM model with higher wages○ open city → in-migration → border expands, higher R(0) Conjecture: if ruler has weaker legitimacy and higher risks of revolution, would try harder to redistribute wealth to capital urbanites. compare mature democracies (legitimate rulers) and dictatorships (less-legitimate rulers)○ stronger redistribution in dictatorships → bigger capital○ observation: ~40% bigger● Weaker centralized army → more redistribution → bigger imperial city○ think of Rome● Rural hinterlands less stable → fewer redistribution → smaller imperial city● Other responses:○ fortify emperor's home - Forbidden Palace of ancient China○ clear the roads for army - restructuring or Paris

Rosen/Roback Spatial Equilibrium

People choose metropolitan areas and each one delivers a bundle of wages, amenities and prices. •This is just a twist on the open city model that you have experienced already. I will use the word "Prices" to mean "Urban Costs" now, where "Urban Costs" are the sum of housing and transportation costs. •A linear model is that for identical people Wages plus Amenities minus Prices is constant across the U.S. •Is this true? What about across countries or in Europe? •If it is true, then amenities can be measured as Prices - Wages. •If amenities attract people, Amenities should predict future urban growth. •If happiness tells us something about amenities, then happiness measures should work as well.

Key figures in finance

Pioneers of Finance: Markowitz, Sharpe Bringing Theory to Wall Street: Treynor, Black Risk vs. Return and Junk Bonds: Milken, Kravis Lew Ranieri and the Salomon Mailroom -- first started working in mailroom, heard from other people about finance, and was able to learn and grow.

The Human Capital Agglomeration Theory Glaeser et al. (1995, 2009), Ciccone and Hall (1996), Bettencourt (2013)

Population Density and College Education are strongest predictors of future growth in neighborhoodsControlling for race, income, age, housing costs etc.

Are the following relationships positive or negative? Productivity and employment density Density and income Population and income

Positive

Pre-modern mega-cities (over 1M)

Pre-Rome: Babylon (150,000, 600 B.C.) Alexandria (400,000, 100 B.C) Rome 1 A.D. (about 1 million, bread doles) Chang'an 600 A.D. (about 1 million, near modern Xi'an) Baghdad 900 A.D. (about 1 million) Kaifeng 1000 A.D. (about 1 million) Maybe Hangzhou 1300 A.D., Nanjing (Jinling) 1400 A.D. Beijing 1600 A.D. Maybe Edo (Tokyo) 1700 and Ayuthaya (Thailand) 1700 London 1825

Video: Japanese Industries

Promote mass education Economic development important Samurai privilege removed Decline in population Very developed today Industrial policy Technicians, managering enterprises, training Not profitable, sold into private hands State control → laizzez faire → state control Firms benefit, sometimes Super dispersed firms Doing everything, across sectors

Fundamental equation of AMM Draw its corresponding "Rent-Bid Curve"

R(d) = rq + c − k(d − b) See Section 1, Slide 14

What are the two equations of the AMM Model used to develop its core formula?

R(d) = y - kd - x where R(d) = rent at distance d y = income k = commuting cost x = expenditures on all other goods R(b) = r*q + c R(b) = annual rental cost for house at the border r = annual agricultural rent per acre q = lot size c = annual rent for constructing a house Let's move in from the border: R(d) = R(b) + k(b - d) d = distance from the center (d< b) b = distance from the center at the city border k = annual commuting cost [include time] per mile to/from central location

Give an example of a centrifugal force affecting cities. What does it mean for it to be centrifugal?

Radios, TVs, cars Move away from center

Ethnic Enclaves and the Economic Success of Immigrants: Evidence from a Natural Experiment (Edin et al)

Recent immigrants tend to locate in ethnic "enclaves" within metropolitan areas. The economic consequence of living in such enclaves is still an unresolved issue. We use data from an immigrant policy initiative in Sweden, when government authorities distributed refugee immigrants across locales in a way that we argue is exogenous. This policy initiative provides a unique natural experiment, which allows us to estimate the causal effect on labor market outcomes of living in enclaves. We find substantive evidence of sorting across locations. When sorting is taken into account, living in enclaves improves labor market outcomes for less skilled immigrants: the earnings gain associated with a standard deviation increase in ethnic concentration is 13 percent. Furthermore, the quality of the enclave seems to matter. Members of high-income ethnic groups gain more from living in an enclave than members of low-income ethnic groups.

Give an example of each of the following infrastructure providers: - public integrated - public independent - for-profit independent - non-profit independent

See Lecture 11, Slide 43

Draw the Components of Housing Rents graph

See Lecture 2, Slide 17

Draw the Housing Rent Gradient with 2 types of Households

See Lecture 2, Slide 28

Draw the Housing Rent Gradient when Population growth expands the border OR technology improves transportation

See Lecture 2, Slide 29

Draw the Housing Rent Gradient when transportation can improve only on one side of city

See Lecture 2, Slide 30

Describe the positive and negative impacts of proximity to a highway (can use a graphical representation)

See Lecture 2, Slide 31

Graphically represent Spatial Separation: Land Rents for Commercial, Residences, and Industrial Uses

See Lecture 2, Slide 39

What's the difference between ordinal and categorical variables, especially in interpretation?

See PSET 2/3 for interpretation examples

Discuss AMM if: (1) building n-stories (2) congestion (3) impact of transportation infrastructure on city size & population distribution (4) if q is endogenous, and resident's utility depends on q (5) if residents are heterogeneous (6) Residents sort into different regions (NOTE: Previously, in equilibrium, all residents have to do equally well (or they will move). Now residents of the same type will do equally well (or they will move), but residents of different type might not.) **(7) separation by commuting costs (k1, k2); What if Group 2 offers very low rent & gets no housing? Or higher rents? **(8) highway

See Section 1

3-fold climate change resilience

Self protection Private insurance Public investment (Lecture 12, Slide 21)

Video: Tony Gomez-Ibañez on Congestion Pricing

Singapore - electronic collectio, GPS, satellite London, clumsier Gauging congestion charging NY perfect place to implement Interstate defense highway act States need money Very hard to upgrade highways in the US

How to solve for AMM closed city?

Situation 1: Closed City: the city has a fixed population N and no migration. Population dispersed evenly on the city (which has radius b) ○ q and b are related! with population, can use one of them to solve for the other ○ if city is a straight line: q = N / 2b ○ if city is a disk: q = N / pi*b^2 ○ if city is a slice of the disk, a fraction v due to geographical constraint: q = N / v*pi*b^2

Give an example of a centripetal force affecting cities. What does it mean for it to be centripetal?

Skyscrapers Move toward center

Video: Birth of a Skyscraper

Skyscrapes announce the birth of a city... very recent phenomenon Church towers, spires Washington monument, eiffel tower, empire state, burj khalifa and petronas towers High quality metal production/iron and safe elevators Industrial revolution → Watts steam engines Wilkinson, world's first cast iron bridge Strutt - wooden beams encased in sheet iron to reduce fires Mill with iron frame // Charles bage Weight of building born by metal framing Metal Frame buildings, thin light walls and even glass Iron palace - stewart Greenhouses - paxton, crystal palace Les halles - paris Otis - elevator Le baron jenny - skyscraper Home insurance Montauk building Masonic temple, burnham Root Louis sullivan Peter b white, fireproofing engineer A collaborative creation All chicago architects knew each other City of chicago deserves the credit, after great fire Cities solve their own problems More usable space on a finite amount of land

What are the 3 key models of urban growth?

Stock-Flow Model Rosen-Roback Model Imperial City Model

Discuss the impact of the pandemic on cities

Social isolation in cities (decrease in trips) Shares of people unable to work due to the pandemic decrease with increasing education Inequality of remote workplace Likewise, death rate decreases with with increasing education Farm to Factory to Urban Service Workers: to Extreme Pandemic Vulnerability Government spending + resignation → pay increases (during pandemic) Change in # of people employed, change in mobility (with work from home), retail and recreation Months in retailer increases, promotion lower for remote vs. in-person Lower collaboration w/ remote work Companies don't hire remote workers Zoom → more competition for global talent? The Understandable anger over urban inequities collides with the enhanced mobility (thanks to Zoom) and ongoing fear of the disease. Housing prices decreasing, land use restrictions Populations are declining post-COVID in cities Cities are resilient What's happening with the built environment post-pandemic? Lots of vacant office space, people fleeing San Fran Commercial office lease - over multiple years! Subleasing still happening What's happening during the week Hybrid policy Back to the office How many people who work in office are actually showing up Transportation is really important, infrastructure!!! What if people switched permanently to Zoom? Working at home... gradient changes... gets flatter, people aren't travelling into the city anymore but they're still part of the city?

Learning in Cities Model

Some initial fraction skilled, S Unskilled learn by interacting with skilled. There is some churn in the population Death rate δ Birth rate of unskilled - exactly offsets death Unskilled can become skilled at rate q The result of this model is a 'steady state' Stead state is a level of S that doesn't change over time Steady state is given by equation Number of Exiting Skilled = Number of New Skilled Which in this model is (Death Rate) S = S(1 − S)(Survival Rate)(Learning Rate) δ · S = S(1 − S)(1 − δ)q What does this have to do with cities? - Cities increase the likelihood of bumping into people - This is especially beneficial if there are high skills present - Suggests that cities with higher skill levels may be more robust What does this suggest about dense areas? - If there are high returns to skills, dense areas will have higher wages and housing costs. - If skilled workers are better able to learn from other skilled workers, they may be more likely to cluster in dense skill intensive areas. In fact cities with smaller average firm size have exhibited greater growth

Examples of Big Data in Cities

Street-level Imagery Aerial Imagery Cellphone Records Mobility Data Social Networks HumanActivity BuiltEnvironment Field Surveys Surveys and records

Video: How do economists approach cities? Urban economics?

Supply and demand graphs Everyone's the same Gotham Wage + non-wage benefits flow (amenities) Traffic, proximity to parent/child Willingness to pay to live in city - individual demand for Gotham Demand curve ^, downward sloping, continuous Fixed # of homes for people, population capped at 1M Denotes price of housing in the city Home or rental price Moves once, lives forever, home lasts forever too (assumptions) Price of housing will rise, demand shifts up, and vice versa Price of city rises

T/F As we have real wages declining, we see the rise of consumer cities (why?)

T

T/F Cities bring productivity but not upward mobility

T

T/F Population concentrated around city center

T

T/F Population growth driven by migration, not fertility rates

T

T/F Willingness to pay for housing decreases with distance from employment center

T

T/F there is an increasing percentage of the world population residing in urban areas across income groups

T

History of textiles

Textiles: From Spindles and Foot Looms • There are a lot of steps in going from cotton or wool to cloth - but we can focus on spinning (making thread out of fluffy stuff) and weaving (taking the thread and turning into cloth). • Ready made clothing is really a 19th century innovation - sewing at home. • Roller spinning is an attempt to use a machine to replace the person. • Lewis Paul tries to produce a viable machine between 1729 and 1750 - he and John Wyatt patent in 1738- but they fail. • Patent means that others can take the idea and copy it when the patent ends • Thomas Highs follows at this - he seeks help from John Kay - a neighboring watchmaker- and they are pretty successful. • But Kay goes traveling in 1766 and runs into a wig-maker, Richard Arkwright. Arkwright buys him an ale (allegedly), takes the idea and hires Kay. • Lawsuits and the Cromford Mill (1771) follow.

The Urban Triad

The Economic Magic of Human Interaction - urban assets that bring people to cities Government battling the Demons of Density - negative externalities from cities The Physical City - feeds into physical look of the city

The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment (Chetty et al)

The Moving to Opportunity (MTO) experiment offered randomly selected families housing vouchers to move from high-poverty housing projects to lower-poverty neighborhoods. We analyze MTO's impacts on children's long-term outcomes using tax data. We find that moving to a lower-poverty neighborhood when young (before age 13) increases college attendance and earnings and reduces single parenthood rates. Moving as an adolescent has slightly negative impacts, perhaps because of disruption effects. The decline in the gains from moving with the age when children move suggests that the duration of exposure to better environments during childhood is an important determinant of children's long-term outcomes.

Sandra Black 1999

The evaluation of numerous school reforms requires an understanding of the value of better schools. Given the difficulty of calculating the relationship between school quality and student outcomes, I turn to another method and use house prices to infer the value parents place on school quality. I look within school districts at houses located on attendance district boundaries; houses then differ only by the elementary school the child attends. I thereby effectively remove the variation in neighborhoods, taxes, and school spending. I find that parents are willing to pay 2.5 percent more for a 5 percent increase in test scores. This finding is robust to a number of sensitivity checks.

We know that housing prices fall from city center to suburb. As you get further from the city center, do housing prices fall more steeply or more flat? Why?

Think of the AMM model and transportation technology. There are different transportation technologies. People using lower cost-per-mile technologies tend to live further away from center. Since the costs of commute are flatter further from the center, housing prices (as compensating the commute costs) are flatter.

Video: Tarun Khanna on Startups in India

Today vs. yesterday Entrepreneurship begins Yesterday Scramble to be ecuated Learn basic code Today Scramble for talent Untapped talent, non urban areas Cities as opportunities Code English Upgrade entrepreneurship ecosystem in India Curating ecosystem... catalyst Dev country Venture Conditions to create Infrastructure ^

Name the forces behind Agglomeration and Congestion

Typically economists focus on the tradeoff between agglomeration (good for cities) and congestion (bad for cities). • In our model, the congesting force came from commute costs. The agglomerating force came from transport costs for the final good. • Other congestion forces include pollution, costs of maintaining public goods. Agglomeration forces include learning, labor market pooling and so forth. • These can sometimes be measured. • They will generally mean that a market equilibrium is not a social optimum.

True/false/uncertain: A school opens up in the town. In order to de-termine the causal effect of schooling on people's life outcomes, we cancollect the life outcomes of the people living here 5 years before the schoolopening up, and outcomes 5 years after. The difference between the two isthe causal effect.

Uncertain/false (or true, with strong assumptions):Other factors could change in the same period of time, e.g. otherpublic goods may also increase (maybe this neighborhood becamericher? or elected a new gov?)People could move in because of the better school, and these peoplemight have different average outcomes than those living in theneighborhood before.

Video: Xi'an

Urbanization in Greece, Rome... then centuries later again China - many year of unbroken city building City of administrative center Emperor - heaven, king Drought, moving capital... tax system Hierarchy Density One big urban center Building and re-building capital Grid Walls within city Fong - neighborhoods within city Wealth, power, culture, status, national culture / ONE PLACE Unity Unified hierarchy Gates Supervision Very different urban space... not commerce oriented/consumer Terra cotta warriors North - defense-oriented Political, war and power South - more free

Article - Trade and Circuses: Explaining Urban Giants

Using theory, case studies, and cross-country evidence, we investigate the factors behind the concentration of a nation's urban population in a single city. High tariffs, high costs of internal trade, and low levels of international trade increase the degree of concentration. Even more clearly, politics (such as the degree of instability) determines urban primacy. Dictatorships have central cities that are, on average, 50 percent larger than their democratic counterparts. Using information about the timing of city growth, and a series of instruments, we conclude that the predominant causality is from political factors to urban concentration, not from concentration to political change.

Video: Don Goldmann on Venetian and Modern Incident Response

Venice responded to plague → Animals Slaughterhouses Sewage running in gutter People threw feces out of windows → outsides of city, men walking Inspected wine, fresh meat, water Ships boarded, searched for foreigners (not rats) and corpses Improved sewage Burial regulations Controlled crowds, religious processions → license Public drinking houses → shut down Restricted beggars, prostitutes, military couldn't carouse in town Record cause of death, data → patterns, glorifies notaries Cordon sanitaire → health pass, get into venice or leave Incident command structure → command and control Paint house with vinegar and fumigated with sulfur Militarization Pest houses, seized dwellings from people Formal board of health

Key ideas from PSET #1

Welfare analysis, open city ○ spatial equilibrium within and between cities ○ total welfare fixed to outside welfare (reservation utility) ● Direct effect: highway → lower transportation costs, especially on the edge ● Spatial equilibrium within city → Incumbants receive higher utility ● Spatial equilibrium between cities → in-migration & expansion ● Border expands to meet new demand ● Commute costs at the new border increase, increasing costs for everyone ● Until utility goes back down to reservation utility ● What happened to the city? ● More people ● Shorter commutes at the center, longer commutes at the new border ● Prices go up

Give examples of how knowledge is more important than space in a city

What do Brunelleschi's influence and the rise of Wall Street have in common? Both examples highlight the potential for cascades of innovation aided by proximity. The importance of proximity can be clearly seen in Jaffe, Trajtenberg and Henderson (1993) which shows the local concentration of patent citations De La Roca and Puga(2015) uses Spanish administrative data to show that cities provide valuable experience which accumulates over time This is in contrast to there being some fixed difference in ability between people in more or less populated areas The denser, larger city of Madrid not only has higher wages but exhibits higher wage growth

Video: The Napoleonic Era and the Restaurant Expansion

When napoleon comes to power... "freedom of pleasure" NO involvement with politics/changes in public domain Golden age... private indulgence Armies lived off land... paris occupied twice... german, russian, british soldiers... restaurants new for these soldiers Restaurants spread Then to america Dalmonico's Moving to cities Social difference, class difference "How paris eats" People eat in different places depending on class Ability to show off Mirrors Elegance

Describe future changes in Commuting Costs

With widespread adoption, EV costs/mile are much less than gas cars even with a little range anxiety. Autonomous could make time spent in a car less frustrating, nerve wracking and even productive time. Ride sharing could result in fewer vehicles, less congestion and faster speeds. Of course EV, autonomous, and shared driving could be so convenient that it generates many more and longer trips! Relaxing the Assumption of Fixed Density

Yelp coverage of restaurants

Yelp shows businesses opening and closing Relationship of Yelp restaurants to county business → low density, less restaurants (actually and Yelped) Certain amount of predictability of using Yelp

What is a capitalization rate?

an assessment of the yield of a property over one year Prices are linked to rents through cap rate i In the asset market prices must reflect the future stream of rents○ Discounted by the capitalization rate○ Higher rents - higher prices○ Higher capitalization rate - lower prices (the future rents aren't as valuable)

If a city experiences rising population, falling income, and rising rents and price levels, what is likely driving the city's growth?

housing supply growth?○ better amenities?● Housing supply growth would decrease rents.○ but the rising rents might drive housing supply!● Think about the Rosen-Roback model. If income falls and prices rise, net income falls. People can be attracted to the city only because compensated by better amenities.

Case Study: Paris

​​•France was La Grande Nation and it's capital was consequently grand. •The epicenter of the city was the old Gaulish island and the roads running through the isle today are still based on Roman roads. •Like the Abbasids, the French invested in universities (religious under the Capetians; practical under Napoleon). •Louis XIV essentially evacuates the city- partially for safety and partially for space. •Napoleon then rebuilds and Napoleon III does more. •The broad boulevards create appearance and military mobility. •Naturally, the political and population centralization of France makes it particularly sensitive to urban uprisings (1789, 1830, 1848, 1871).

The Social Costs of Road Roughness

• First, we give a simple model in which the impact of roughness on speed is a sufficient statistic to measure the private costs of road roughness on drivers. • Basic intuition is that slower driver means less vertical acceleration, and the associated time loss is essentially the willingness to pay for less acceleration. • Second, we will measure the impact of roughness on speeds importantly, roughness must be anticipated. • Empirical Method # 1: Road Repaving in Chicago. • Empirical Method # 2: Border Discontinuities nationwide

Agglomeration, Natural Advantage and Selection -- 3 hypotheses

• Hypothesis # 1: Reverse Causality- areas have intrinsic productivity advantages which lure people (ports, coal mines). • Better government can also be seen as a productivity advantage. • Variants- there were historical agglomeration advantages which have disappeared but capital remains, • Hypothesis # 2: The agglomeration of people in space makes them more productive. • Reduced Transport Costs for Goods, People and Ideas • Hypothesis #3: More able people sort into cities, perhaps for consumption advantages.

Street-level imagery

• Images of streets collected by vehicle-mounted cameras • Accompany maps in interactive web interfaces • Google Street View, Microsoft Streetside, Tencent (China), Wonobo (India) - place pulse --> Crowdsourced urban appearance survey Thousands of images are rated → Microsoft Trueskill → high and low streetscores Measure change in physical landscape → 2007-14 NYC → city streets were looking safer

Christaller's Central Place Theory

• In the Christaller/Losch view, the cities are primarily about providing stuff for the nearby farmers. But urban providers also make stuff for other urbanites. • This is obvious in city services - restaurants, barber shops but also accountants and lawyers. • Also in manufacturers- Fisher Body made car bodies for General Motors. • The core idea is that there is a virtuous circle where an initial bunch of people then attract more firms and it snowballs. Growing on itself. • This becomes more important when there are scale economies. • This helps link industrialization and urbanization

Why Does Height Cost More?

• Load-Bearing Walls must get thicker as the building gets taller. • Basic idea is like an acrobat pyramid, the lower levels must carry the upper walls weight. • The Skyscraper Idea: Use a metal skeleton to carry the weight of the building - much less weight on the structure below (like a cage). • Walking up stairs is painful - especially with groceries, etc. • Almost surely the cost of each flight increases with the number of flights (a convex cost function). • Look at older European cities where heights top out at six stories. • The elevator solves this problem. Piano Nobile and Garrets Penthouses Skyscraper: St Pancras (No, 1873) Home Insurance (yes, 1885) Joseph Paxton and London Crystal Palace (1851) Victor Baltard, Les Halles and St. Augustine The NYC Crystal Palace (1853), Elisha Otis and the Safety Elevator

Infrastructure Inequality Lindsey Currier, Edward Glaeser and Gabriel Kreindler

• The D.O.T. IRI measures look at D.O.T. funded roads, not the ordinary streets that are typically the most awful. • In this paper, we are going to provide a measure of road roughness. • We will try to measure the social costs of road roughness using the relationship between driver speeds and road roughness. • With an assumption about functional form, the speed-roughness relationship tells you both about time costs and total costs born by the driver. • We will then ask which parts of America suffer most from bad roads. • Finally, we are going to ask we seem to be targeting road repaving towards bad roads. Highway roughness Our highways were getting better But our local roads are awful! IRI → measure bumpiness Willingness to pay to avoid bumpiness → slowness Standard deviation of vertical acceleration → measure of road roughness Not clear which is better, IRI or Uber? Aerial vision → target road paving If you know it'll be rougher, you'll slow down in advance, vs. if u just came upon a bump at full speed

History of power (steam engines)

• The Newcomen Steam Engine exists after 1700. Matthew Boulton is a pioneer of mass production (primary of baubles)- a great entrepreneur and politically connected enough to get Watt's patent extended. • He also brings connections to Birmingham's historic iron-making expertise, as epitomized by John "Iron Mad" Wilkinson. • Their partnership produces engines but then the engines empower a chain of related inventions: • Steam boats and steam trains; Murdoch and the Sun and Planet Gear • Later factories could rely on coal-power engines rather than rivers.

Gentrification

• The first order effect is redistribution: gentrification is associated with rising rents ; higher rents transfer wealth from renters to landlords ; existing renters lose out. • The impact of gentrification on rents depends on the supply of housing. More elastic housing supply means that housing impacts will be reduced. • But there is also a claim about the loss of local culture, which is far harder to properly investigate. • One model is that you have local idiosyncratic retailers who generate more consumer surplus than coffee shops that are basically providing convenience. Which areas are gentrifying → Yelp can tell us this Demographic data Substantive neighborhood change in areas that are gentrified? First order change in rents → winners and losers Redistribute back to people who are hurt Losing community attributes? → prevent gentrification More growth in gentrifying areas than non-gentrifying areas Are there more closures of establishments? Higher closure rates in rich areas

Continuous vs. Discrete Jumps in Height

• The graph predicts that there will be gradually decreasing heights as you move away from the center of the city. • That comes from the nice linear relationship between height and average cost. • But think in terms of two technologies At what price (per square foot) do you switch from the low technology to the high technology? Cities vary continuously and discretely • Discrete technologies (the subway, the skyscraper) naturally create discrete land use zones. • These natural breakpoints are then joined by breakpoints associated with land use controls (zoning about lot sizes, building up, uses known as Euclidean zoning). • These zones - and these technologies - have the capacity to shape the social environment of the city as well (remember real cities are flesh and blood not concrete and glass). • Where will poor people live? • Where there is public transportation? • Where there is cheap land? • Where there are inexpensive apartments?

Transportation Adoption: Three Phases

• The technological revolution • Watt's separate condenser steam engine (Watt) + sun and planet gear (Murdoch) in 1784 • Electrification of trains (Siemens 1879-1881) and elevators • Internal combustion engine (Otto, Daimler, Benz: 1864-1879) • The transportation infrastructure investment • Rails for horse drawn omnibuses and then trains and electric trams • Tunnels for electric trains • Limited Access Highways for Cars • The built environment revolution • The expansion of the city outward, upward and around highways in suburbs

The Urban Wage Growth Hypothesis

• These data seem to show that migrants do really receive an urban wage premium suggesting that it is not all selection. • But that wage premium accrues over time. • Cities seem to be approximately like universities. • These facts are compatible with the learning in cities view - we will address this in the lecture on learning and entrepreneurship in cities. • This can also be called cities reducing transport costs for ideas.

What are the 4 implications of the procurement model (Lecture 11)?

•# 1: Regulatory Laws that reduce PE discretion reduce bribery. • # 2: Practices are better than laws when accountability is high and worse when accountability is low. •# 3: Process and product improve - regardless of the laws - in more accountable countries. •# 4: Regulation is good in low accountability countries and bad in high accountability countries. •Two measures of accountability: WGI Government Effectiveness and National Human Capital (many past papers on this).

Amenities and urban change (describe)

•20th century levelled the entertainment playing field •Rising Education seems to increases the demand for high-end entertainment (live theater, museums, fancy restaurants) Rising income •Increasing value of time causes an increased demand for experiences relative to goods. Cities can specialize in experiences. •Cities specialize in connecting people and this may be the greatest urban asset: cities as "marriage markets" •And this may be more important with both spouses in labor market (Costa and Kahn). •Urban policy: rising incomes mean that quality of life is an important determinant of urban success.

Key caveat to AMM Model regarding transportation

•AMM model assumes equal accessibility from all locations • However, transportation technology matters and varies across a city •Using hedonic models, researchers estimate the value of accessibility to household when choosing their locations: •Baum-Snow and Kahn (2001) estimate that moving from 3 miles to 1 mile from a transit station increases rent $19 per month and a housing prices $4,972 •Benjamin and Sirmans (1996) reports a decrease of 2.4% to 2.6% in housing price for every tenth of a mile from a Washington D.C. Metro station •Garrett (2004), a study on the Metrolink in St. Louis, shows an increases of $140 in home price per 10 feet closer to a station •Cervero (2003) shows multifamily residential parcels in San Diego located a mile or more away from the freeway sell at a $67,000 premium; parcels located more than one mile from an on ramp have a $43,000 decrease in value. Important for households, offices/commercial properties, industrial property, Amazon

Ades and Glaeser (1994) -- 2 key points (capitals, democracies vs dictatorships, stability)

•Ades and Glaeser (1994): the overwhelming majority of primate cities (largest city in the country) are capitals (79/85 in our sample). •The exception are former English colonies where political wrangling recognized the tendency of rents to flow to the capital - and Turkey. •Capital primates are about 42 percent larger than non-capital primates. •Capital cities of dictatorships are about 40 percent larger than capital cities of democracies- but this is also true for "new" democracies. •Unstable democracies have larger primate cities. •More protectionism (and worse roads) mean larger capitals as well.

Problems with water infrastructure in the US

•Aging water systems and wastewater treatment plants are a problem in many cities •Wastewater treatment plants are aging and often processing more waste than they were designed to handle •Older combined sewer systems (such as New York, Atlanta, San Francisco) where a single pipe handles human waste, industrial waste and storm water runoff during storms can overflow into surface water •Until the 1980s, 60% to 70% of funding for water infrastructure came from Federal government; since then, federal funds less than 10%. New Infrastructure and Jobs Act allocates $55 billion to water and wastewater infrastructure. •Flint's water crisis produced serious health concerns particularly in children •Mayor of Milwaukee advised residents in homes built before 1951 to install water filters to deal with toxic levels of lead •Brady, Texas has water with 9 times more radium than recommended •In 2016, Pittsburgh Water and Sewer Authority sent out letters indicating the lead in their water was 1.5 times greater than the federal limit •Jackson, MS: August 2022, water system overwhelmed with flood waters left 180,000 people with no water and no flushing toilets. February 2021 and December 2022, deep freeze results in bursting water pipes

Case Study: Alexandria

•Alexander the Great founded the city in 331. It's locational value was being on the Mediterranean and the Nile Delta •Earlier Egyptian cities were inland. •After Alexander's death, Ptolemy of Lagus starts a Hellenistic dynasty which rules until the death of Cleopatra and Roman domination. •The great grain wealth of Egypt supplies its citizens. •It is famous as a repository of wisdom (the Library of Alexandria). •Its notable lighthouse (100 meters high - one of the seven wonders). •Largest Jewish population in the ancient world. •Surpassed after the Arab conquest moved the capital of Egypt to Fustat.

Why is infrastructure so expensive in the US? (cite 2 papers discussed in Lecture 10)

•Altshuler and Luberoff in Mega-Projects: The Changing Politics of Urban Public Investment (2003) argue: • In the late 1960s and 1970s, neighborhood activists and environmental groups began to succeed in blocking large infrastructure project. Many thought that mega projects were dead •"Do No Harm" planning succeeded in completing mega projects by minimizing disruptive side effects and aggressively mitigating any harm. This approach has been effective but costly. •Brooks and Liscow (2020) find: •Increase in highway construction starting in the 1970s does not reflect increases in real prices for labor and materials which move very little over time •Demand for more expensive highways increase with income •Increase in "citizen voice"—the increase in mechanisms by which citizens can voice their concerns about large scale projects and their impacts •Both capital and operating costs of transit service are heavily subsidized. Parry and Small (2009) offer 2 rationales for fare subsidies •By decreasing the price for transit ridership, fare subsidies increase ridership and lower the cost per trip •Lower fares discourage car use thereby reducing external costs from congestion, pollution and accidents. Second best solution that assumes that these externalities are not internalized through appropriate road pricing •Underpricing both cars and transit encourages more travel •Mass transit requires sufficient population density to produce enough riders: •Bus service requires lower densities because of the lower capital costs •US cities, with the exception of NYC, do not have the densities to support fixed rail •As cities grow and change over time, bus service offers greater flexibility to meet those future need. Routes and service frequencies can be changed more easily than with fixed rail •Urban Economist Mantra: Bus good, Train bad!

The Renegotiation Problem

•An initial auction can be arms length and produce what seem like good prices. •But once the work begins and conditions change, there is an opportunity for renegotiation. •At that point, there is scope for hold-up, since we are no longer in a competitive setting. This is where procurement gets expensive. Example: Manila water - Moses model - parastatals in Subsaharan Africa

Optimizing housing configuration, FAR, and redevelopment

•Builders and developers compare the incremental value of additional house features against their incremental cost. Optimizing capital inputs. •Profit maximizing house: where the cost of an additional square foot, bath, fireplace falls to the marginal cost of construction. •Builders and developers seek optimal density or FAR. How intensely should they use the land which can be expensive input? •FAR: floor area ratio (ratio of floor to land area). •FAR = stories x % of lot used ​​•Durability of existing structures generates a barrier to the smooth adjustment of FAR over time. •Rarely do we see incremental FAR increases. Rather old uses are destroyed and replaced with new. •Value of existing structures per square foot of land increase in value of new structure and site > demolition + development costs •Redevelopment occurs when the value of land developed optimally exceeds the value of existing use plus demolition costs Hedonics and location characteristics

Draw the Southeast Quadrant: Stock Adjustment

•Buildings depreciate, not perfectly durable •Costly to maintain quality •Residential depreciation rate 3% per year •Rate for 30 year old buildings is double the rate 10 year old buildings (Maintenance costs rise w/ age) •Stock adjusts through new construction (C*) and depreciation of the existing stock, δ where 0 < δ <1 •Equilibrium C = S*∙ δ

Case Study: the North End of Boston

•By 1850 over half of the North End population was Irish. •In 1900, one third of the North End population was Eastern European Jews •First Italians arrived in 1870; by 1930, 44,000 Italians in North End (1 square mile) •Today, less than 40% of population Italian American

What is the difference between class A and class B buildings?

•Class designation is a way for realtors, owners, and tenants to deal with the heterogeneity of real estate by defining the relevant submarket of space which are close substitutes •Building Owners and Managers Association definitions: •Class A buildings: •Most prestigious buildings with above average rents •Premier tenants. •Attributes include high quality finishes, state of the art systems, and a definite curb appeal. •Class B buildings •Average rents •Wide range of tenants. •Attributes include fair to good finishes and adequate systems •Buildings do not receive a formal designation and there is some disagreement about which category should apply to specific buildings

Draw the Southwest Quadrant: Development, and the impact of Increase in Construction Costs

•Compare Asset Values (P) with Replacement Cost: P=f(C) •Replacement Cost •Land •Labor •Materials •Development process costs •Shift/rotation in C function •Input prices •Development time / regulatory process •Technology

Discuss the strengths and limitations of the DiPasquale-Wheaton 4-Quadrant Diagram

•Conceptual framework that shows the relationships between the space market, the asset market, development and the stock. •Equilibrium: Solution to the endogenous variables, R, P, C and S given exogenous values and parameters. •Comparative Statics: How changes in exogenous variables change equilibrium R, P, C and S. •Model does not provide the exact path or timing to the new equilibrium. •Model does not provide estimates of the size of the changes in equilibrium values of R, P, C, and S. •Defining a real estate market •Single labor market •Metropolitan Statistical Area (MSA) •Market Participants •Households--Census •Non Residential Tenants •Investors •Developers

List some negative density-related externalities

•Contagious Disease: water or air-born. •Polluted Air: smoke. •Congestion of city streets. •Crime is a bit of an externality. •Definition of an externality: one person's action impacts another person's welfare in a way that is not mediated by a market mechanism. •Response # 1: reduce the effective density (import water from low density places, build more roads). •Response # 2: change behavior through fines (Pigouvian taxes), subsidies, lawsuits (the Coase Theorem), and regulations (Euclidean Zoning, Clean Water Act).

Modeling Automobile Externalities: Congestion

•Cost of a trip to individual making the trip: Private Trip Cost= m + d*T(V) where m=out-of-pocket monetary costs, d=value of time, T is trip time which is a function of traffic volume, V •Private trip costs includes the impact of other drivers on that individual but ignores the impact of that she places on other drivers. Private trip cost=average trip cost •External trip cost is the cost that each driver imposes on the other drivers on the road (if a road is congested, the next driver imposes a cost on all the other drivers already on the road by increasing their travel time). • Social trip cost= Private Trip Cost + External Trip Cost= Marginal Trip Cost **internalizing the externality** -- Optimal congestion tax sets private cost (inclusive of tax) equal to social cost → leads individuals to internalize the externality that they impose on others. Section 5, Slides 29-31

Stock-Flow Model of Real Estate Market

•Defining characteristic of the real estate stock is durability •The current stock of space in relation to demand determines rent •The present discounted value (PDV) of that rent determines an asset price for each unit of space. •Asset prices bring forward new construction (the flow of new stock). •Construction takes time. The level of new stock evolves very slowly depending on construction and depreciation.

Case Study: Babylon

•Early City-State along the Euphrates River (now Iraq) •Hammurabi conquered a number of his neighbors and created a small empire •Babylon was his capital and probably the largest city in the world in 1700 B.C. •Hammurabi's code is justly famous and represents the need of brining order to his urban world. •"If a builder build a house for a man and do not make its construction firm, and the house which he has built collapse and cause the death of the owner of the house, that builder shall be put to death" •Assyrian conquest leads to Babylonian decline, but rises again with independence in 600 b.c. (Nebuchadnezzar). •But Cyrus the Great of Persia conquers the city, by diverting a river and entering through underground waterways - the city's wall were not breached.

Implementing a Congestion Tax -- what makes for effective implementation?

•Efficient congestion tax varies across space and time. Most current user fees (fuel taxes, vehicle fees, tolls) don't vary across space and time. •Parry and Small (2009) show significant variation in congestion taxes by metro area and time of day •Current technology permits efficient collection of congestion tax •Singapore, Milan, Stockholm and London use Electronic Road Pricing (ERP) smart card system that charges fees that rise with congestion Trip Cost= m + da* Ta + dv * TV where m is the monetary costs, da is the marginal disutility of access time, Ta is access time, dv is the marginal disutility of in vehicle time and TV is in vehicle time For car trips, access time is close to 0 (walk from house to garage; shopping and employment often provide free parking on site) Studies show that transit riders are willing to pay 80% of wage to decrease access time and only 50% of wage to decrease in vehicle time

We see a negative exponential for population density across cities, except:

•Exceptions include: •Centrally planned cities, like Moscow or Brasilia •Cities that developed under apartheid, like Capetown and Johannesburg

Financing roads and transit

•Federal government provides about 25% of annual funding, state governments 40% and local governments 35% •User fees (fuel taxes, vehicle fees, tolls) account for about 48% of expenditures. •General fund revenues and bond proceed provide the rest

5 Key Concepts about Urban Transportation

•Fining misbehavior is often more efficient than subsidizing "good" behavior. •Paying for free sewers artificially induces urbanization. •Cheap subways encourages more travel, as well as some substitution out of driving. •But the ability to impose efficient fines depends on legal institutions. •If inspectors extort the innocent, then efficiency declines. •Infrastructure often encourages more externality-creating behavior •More roadsà more driving (Duranton and Turner, the Fundamental Law) •Maintaining infrastructure can be as difficult and important as building. •Institutions, such as Public Private Partnerships, impact maintenance incentives. •Procurement is important and a source of both waste and corruption.

Discuss the distinctive features of Real Estate

•Fixed in space—Location determines A. Accessibility B. Public goods & services C. Neighborhood •Durability—older properties are good substitutes for new properties •Properties are heterogeneous A. Structure B. Land lot C. Neighborhood •Real estate is very expensive •Substantial moving costs •Real estate is a very regulated commodity

Case Study: Chang'an

•Han dynasty capital as early as 200 b.c. Population reaches 240,000 around 0 b.c. Decline during the chaotic six dynasties period. •Rebirth in the Sui dynasty, which unified China, and under this stronger regime the population soared towards one million. •Location is tied to the center of a road network and like Milan (Mediolanum) has the advantage of facing northern invaders directly. •Chinese cities were notably walled - and there were strict regulations linking the political importance of the city to its size and shape. •Many important Chinese innovations in urban quality of life, including night soil farming, effective urban fire fighting. •A vastly more urbanized and advanced society than Europe after 500 c.e.

The Matsuyama (1992) Twist

•In a closed economy, like the U.S. historically, agricultural productivity increases urbanization and industrialization. •This works through a price effect: more agricultural productivity lowers the return to agriculture. •In an open economy, low agricultural productivity leads to more NOT LESS urbanization. •The price effect is turned off. •Port au Prince can be fed out of New Orleans. •But many poorer cities specialize in services with exports of commodities and aid. SIMPLER VERSION: •People must eat, and in a closed economy (no food imports) there need to be farmers. •Without trade, when agricultural output is low, there are more farmers. •This works through prices, when food is scarce (because of low productivity) then the price of food is very high. (Prices are much lower today). •With trade, assume that there is one non-agricultural good, and there is global price of this good in terms of calories "Price" •The critical condition is whether Traded Good Output per Worker*Price> Caloric Output per Farmer •If that condition is met, then everyone will come to the city and make the traded good. •If not, then everyone will farm. •If farms are less productivity, then there will be fewer farmers. Model Ingredients Population who can either farm or make industrial goods Productivity of farming and producing industrial good Transport costs associated with the industrial good Closed economy logic When agricultural productivity is high, fewer farmers are needed to feed the population This will shifts workers towards the city, which leads to an increase in industrialization The price of the industrial good adjusts to incentivize working in the city What happens in an Open economy? The price is now determined in the global market. More productive agriculture will lead to more people wanting to enter the agricultural sector! Section 5, Slides 33-36

What are the ethical issues and nuances of the debate on who should pay for climate change adaptation?

•Is climate adaptation a public good? Should the government protect a beachfront hotel from storm surges? What's the role of private insurance? •Climate disruption may fall disproportionately on one location vs. another. Should local governments take full financial responsibility for climate adaptation in their area? •FEMA pays for the damages caused by any violent storm and related sea surge. •Is there a difference between paying to recover from a disaster and paying ex ante to prevent damage from a disaster? Miami-Dade Case Raises 3 Key Issues Facing Local Governments Concerning Investments in Climate Adaptation •The uncertainties surrounding potential impacts •How much to allocate to address uncertain impacts •What are the responsibilities of each level of government for investments in climate adaptation Boston, Shanghai seaport has been flooding now, too! Planning sea walls (not a great solution)

When does redevelopment occur?

•Lack of demand for existing structures can lead to disinvestment and abandonment. Big issue in cities that have lost population. •Land use change will occur when: value of land and new structure > demolition plus development costs •Demolition is expensive •Permitting process for new construction is expensive and takes time •Re-use of existing structures is viable if •Sufficient demand for the location •Existing structure can be modified to meet the requirements of the new use at a cost that makes the project viable.

Hedonics, Housing characteristics, and the Sandra Black 1999 paper

•Location of house determines schools, public parks, municipal services, neighbors, aesthetics (nature, architecture, etc.) available to a household. •The value of these locational amenities are capitalized into the price of a house. Households pay more to live in good school districts or historic districts. How much more? Good schools increase house values for those who use the schools as well as those who don't. •Accurately measuring locational amenities remain a challenge. Unobserved neighborhood characteristics can bias estimates. •Black (1999) explores the value parents place on good elementary schools by estimating house price hedonic models in an attempt to isolate the contribution of school quality Sandra Black Attendance district - hold a bunch of things constant that you could not otherwise Some terms are squared in the regression Implies nonlinear relationship between variables 4th bathroom not as valuable as the 3rd Value of house goes up if kid does well on test score If didn't have data to look at boundary, would have overstated impact of quality of schools Hard to measure What can you measure? What's left out? •Black's results suggest that unobserved neighborhood characteristics lead to an overestimate of the value placed on school quality (5% increase in test score increased house prices by 4.9% ($9280) •By moving to a narrow geographic definition of neighborhood including houses on the boundaries of attendance districts, the coefficient on test scores is reduced by half. A 5% increase in test scores increased house prices by 2.1% ($3948) •Black's analysis illustrates the usefulness of hedonic models in valuing public goods but also shows the importance of adequately controlling for neighborhood characteristics

The rise of the consumer city - LA and Miami (aka, the "nice" cities)

•Los Angeles is initially incredibly far away from the core of the U.S. •The region ships hides and tallows around the Horn to the east, and supplies beef to the miners of the 1849 gold rush. •The railroad and the Panama Canal connect L.A. to the East. •But there still is no natural industry there- it is just nice. •Retiring midwestern farmers come in droves. •Frank L. Baum moved to Hollywood in 1910. •The movie industry also produced a product with very low transport costs, benefits from good weather and rich people. •The presence of that industry then builds further amenities. •Howard Hughes is another person who relocates for fun.

The Learning in Cities Model (Lecture 9)

•People are born at skill level 1. •They have an interaction every period with a random person. •If they meet someone who is more skilled than them, with probability 1/10 they move up a skill level. •With probability 5 percent, they die or leave the city each period. •New people come in at skill level one to fill their apartment. •Note that the top skill level is indeterminate - if no one is higher than skill level 1, no one will ever get more skilled. •But we will assume that there are people up to skill level 2. Steady state Meetings --> equations •Higher values of m will always mean a higher survival rate and a lower probability of dying or leaving before the next meeting. •Consequently, smaller frequencies for lower shares- which makes the amount in the highest skill level higher. •Or the range of skill levels is larger. •If bumping into people is how we learn, then a faster bump rate means a faster rate of learning and a more skilled city overall. •This model predicts that density leads to innovation but also •That skilled cities will be more successful •That skills and density are complements - more to learn means a desire for faster learning. •This also predicts that economic segregation may be really important for cities. •Also - this explains the location choice of idea-intensive industries (Nursery Cities - Duranton and Puga) •Why skilled cities have come back and unskilled cities have not. •Maybe even why skilled people increasingly cluster together. population level + years worked in a city matter for learning!

How do neighborhoods impact opportunities and behaviors?

•Quality of local services (public schools, quality affordable child care, parks, etc.) •Role models (adults can demonstrate the importance of work, education and community) •Peer Groups (friends who prioritize school achievement, good values) •Social networks (neighbors looking out for each other, sharing information about jobs, services, educational opportunities) •Safety (exposure to crime and violence) •Isolation (distance from jobs, transportation, support systems)

Real Estate Stock vs. Flow

•Real estate stock is the value of existing structures (assets that are part of nation's wealth) •Real estate flow is the value of additions to the stock in a given year (value of new construction put in place is counted as part of GDP) •Additions to the stock take time (on average, permit to completion is 7.5 months to build a single family home, 11.5 months to build an apartment building, and as much as 3-5 years to build an office tower) •Land is not part of GDP because land is not produced •Government estimate of the value of the stock is based on book value. Difficult to measure market value

Key results of AMM

● Prices are higher where utility is higher ● Price differences across space are determined by the differences in value across space ○ In the simple AMM model relative value, hence relative price, is determined by commute costs ● Where land is more expensive, land is developed more intensely. ○ More structure capital per sq^2, i.e. buildings are taller. ● The market separates land use and households ● Overall prices are determined either by total population, or by the total amount of land ○ More population - more expensive ○ More land - less expensive

Case Study: Rome

•Rome supposedly had seven kings who ruled from 753 b.c. to 509 b.c. •These were Tarquins (probably Etruscan) and Etruscan engineering may be responsible for the Cloaca Maxima (Rome's great sewers). •Lucius Junius Brutus (and an urban mob) overthrow the last Tarquin. (provocation is the rape of Lucretia- see following slide) •For 3.5 centuries, there is oligarchic rule and military success. •System begins to break down in 133 b.c.: Tiberius Gracchus pushes for land for the urban poor and gets clubbed to death by Senators. •His brother Gaius follows, has more success, but is also killed. •Grain doles for the Roman poor are a regular feature. •Marius allows the landless to become Roman soldiers. Botticelli's Tragedy of Lucretia at the Gardner •In the first century b.c., Rome achieves remarkable military success abroad (Gaius Marius, Sulla, Pompey, Julius Caesar). •But faces increasing challenges nearer to home, as their allies rose up against them in the Social Wars. •Rome wins those wars, but extends citizens to all Italians. •Consequently, they are entitled to a grain dole as long as they come to Rome. •The city expands enormously - at its height about 350,000 people are on the grain rolls. •The military strength of the proconsuls eventually leads to military dictatorship, especially after Julius Caesar crosses the Rubicon. •Oligarchies are vulnerable to populists promising military success and handouts •Augustus "found Rome a city of brick and left it a city of marble" •Probably not literally true, but rhetorically it has punch. •Abundant monuments celebrating the emperors. •Large infrastructure for pacifying the population. •But also infrastructure for keeping the city healthier - aqueducts and sewers. •Justly famous road system and famous legal system. •Incentives as well as institution: Caesar and the traffic ban.

Key papers on innovation in cities

•The Creation of Large Scale Breakthroughs •Audretsch and Feldman, AER , 1996 •Jaffe, Trajtenberg and Henderson, QJE 1993 •Learning in cities (Alfred Marshall): "The Mysteries of the Trade become no mystery but are, as it were, in the air" •Glaeser (1999), Journal of Urban Economics •De La Roca and Puga (2015) Review of Economic Studies •Entrepreneurship as urban human capital and the longer term impacts of industrial history •Chinitz (1960), American Economic Review •Glaeser, Kallal, Scheinkman and Shleifer, JPE, 1992 •Glaeser, Kerr and Kerr, Review of Economics and Statistics 2015

The Hart/Shleifer/Vishny Model of Public vs. Private

•The public entity has weak incentives- and doesn't exert effort. The private entity has strong incentives and it cuts costs. •Glaeser and Shleifer argue that non-profits are a bit like public entities, with weaker incentives to cut costs, which can avoid quality cutting (USAA, hospitals) •Public entity doesn't pay bribes, since they don't keep the money. •The private entity will pay the bribes and extract rents from voters. •Non-profit might not (weaker incentives).

AMM --> long, narrow city example

•This linear structure doesn't allow for amenities to be a luxury good. •For this concept, you need something like diminishing returns to money relative to the weather/amenities.

Moving to Opportunity (MTO)

•US Department of Housing and Urban Development (HUD) ran MTO from 1994 to 1998 in Baltimore, Boston, Chicago, New York and LA •4,604 families living in public housing were randomly assigned (RA) to 3 groups: •An experimental voucher group that was offered a subsidized housing voucher but was required to move to a census tract with a poverty rate below 10 percent •A Section 8 voucher group that was offered a standard subsidized housing voucher with no additional requirements •A control group that was not offered a voucher (but retained access to public housing) •Participants were tracked over time to measure the impact of the vouchers on various outcome measures •Early studies found significant improvements for participants who moved to better neighborhoods in terms of physical and mental health, subjective feelings of well being, and safety. •No evidence of an impact on economic outcomes (employment and earnings) were found for adults and older children)

Border Discontinuities in Chicago and elsewhere

•We do a national experiment with 137 uber cities (like MSAs), 2641 towns and 3905 border pairs. •We restrict to within 1 km of the border and include border-pair fixed effects. •We instrument for the roughness level by roughness further within each town. •We expect larger coefficients because the border jump is presumably better anticipated. From our border discontinuity data, an increase of 1 standard deviation in predicted roughness (at 26.5 mph) generates a welfare loss of 14 cents per mile. Border discontinuities in chicago and elsewhere → instrument for roughness level by roughness further within each town Expect larger coefficients because the border jump is presumably better anticipated Increase cost by 50% → we could save sm by having smoother roads

Is public ownership totally distinct from private ownership?

•We tend to focus on public ownership vs. private ownership as a massive distinction (Karl Marx vs. Adam Smith, etc). •But public ownership is often associated with private provision, because the road, etc., is often built by a private company. •Very rarely is public infrastructure 100% public. •The construction phase typically requires a highly specialized labor force, etc., which makes outsourcing appealing. •Yet private builders often seem to build better and cheaper roads when the client is a private company (Ram Singh evidence) than when the client is the state. •Across the world, public procurement may be the most important source of global corruption (rivalling regulatory relief and underpricing the transfer of public services). •Within the US, the rules regarding public procurement add or subtract billions, or lead to lower or higher quality infrastructure. - bumpy roads - PPPs and Water: Engel, Fisher, Galetovic Caveat -- The Procurement Challenge: Tweed's Infamous Courthouse

What is the tradeoff in regulating government?

•When regulating private actors, there is usually a tradeoff between limiting negative externalities (which is good) and reducing individual autonomy (which is bad). •These are not the tradeoffs in the regulation of government. •The tradeoff is between limiting socially harmful, but privately advantageous actions (e.g. corruption) and allowing the leeway to follow more subtle strategies that benefit society (i.e. choose a better highway builder, even if costs are slightly higher). •The optimal regulation of government will depend on how aligned the public actor's interests are with society as a whole.

Case Study: Miami-Dade - 4 articles were assigned for HW on this

•With more intense storms, flooding pushes toxins from Superfund sites into the groundwater •Limestone mining along border with the Everglades has produced toxins that seep into groundwater. •Rapid residential development resulted in dependence on septic tanks for sewage avoiding the time and expense of hooking up homes to the sewer system. Rising groundwater has resulted in untreated human waste seeping into ground water •As oceans rise, saltwater can be pushed into the aquifer •Miami Dade County includes 34 cities and towns including Miami and Miami Beach •County governed by Mayor and Board of County Commissioners •Water and Sewer Department (WASD) serves 2.3 million people and 27 cities and towns •WASD owns 6300 miles of pipe, 1000 pumping stations and 3 large sewage treatment plants. Largest of the treatment plants is the Central Wastewater Treatment Plant located on the Virginia Key. •WASD provides water services at a very low rate compared with other departments in Florida and nationally •Miami-Dade violated the US Clean Water Act by illegally discharging waste more than 260 times between 2006 and 2012 due to corroded and decayed pipes and pumps •Miami-Date also needed to meet the Florida state requirement to reduce ocean outfalls for disposal of treated wastewater and end ocean outfalls by 2025 •Miami-Dade was facing stiff fines and court actions from both the federal and state government •WASD agree to negotiate a consent decree with federal and state officials to invest in fixing the decaying infrastructure •Total costs of these improvements estimated at over $10 billion - The Biscayne Bay Waterkeepers Alliance •Threatened to sue the County because the negotiations neglected the potential impact of climate change on the water and sewerage system •Wanted the deal to include "climate proofing" the planned investments. Argued that improving facilities that were vulnerable to flooding and storm surge is risky both economically and environmentally •Almost 60% of county is less than 6 feet above sea level leaving it vulnerable to storm surges that accompany tropical storms and hurricanes •Sea level rise threatens the coast and property (some estimate properties valued at over $4 billion could be at risk) •What is the risk to drinking water of sea level rise? •What is the risk to the wastewater treatment plants? •3 wastewater treatment plants are located along the coast making them susceptible to storm surges on top of higher sea levels •Central district wastewater treatment plant most vulnerable because it is located on Virginia Key, a barrier island Ways to resolve the situation: •Make "no regret investments" only: Investments such as restoring mangrove swamps or other natural barriers. Avoid investing in assets that might be stranded over time. •Make investments in options such as raising and hardening treatment plant sites (costs estimated between $20 million and $115 million) •Relocate the 3 treatment plants over a 10-15 year period (estimates over $8 billion) •Are there other options that should be considered? •Court dismissed the Waterkeeper's suit. US EPA and Justice and the State of Florida did not support the Waterkeepers demand for climate adaptation in the consent degree. •County passed a resolution requiring that planning, design, and construction of county infrastructure consider potential sea level rises •County approved annual increases in sewer tariffs for 5 years resulting in a 35% increase by 2019