urban and regional economics
DESCRIPTION
Urban and Regional Economics. ECON 246 Prof. Clark Week #1. My Specifics. Office: DS412 Office phone: 288-3339 Office hours: Tu, Th: 3:30-5:30, by appointment. Open Door Policy e-mail: [email protected] I encourage you to make use of this! - PowerPoint PPT PresentationTRANSCRIPT
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Urban and Regional Economics
ECON 246
Prof. Clark
Week #1
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My Specifics
• Office: DS412• Office phone: 288-3339• Office hours: Tu, Th: 3:30-5:30, by appointment.
– Open Door Policy
• e-mail: [email protected]– I encourage you to make use of this!
• Web site: http://classwork.busadm.mu.edu/classwork/clark
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Textbooks and Readings
• O’Sullivan textbook – Undergraduate level– I expect you to read this, and we will cover
some material in class. You will be responsible for much of this on your own.
• Readings– Wassmer book– Other readings from journals
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Class Overview• Class is divided into three sections
– Regional economic issues• Where economic activity locates in a large region
(employment and population).• Systems of cities and urban hierarchy• Urban and regional growth models
– Urban location models• Where urban activity locates within cities (employment and
population)
– Urban problems• Poverty, housing, and transportation
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Examinations• Exams
– Two non-cumulative take-home mid-terms– Cumulative in-class final– Worth 25% each
• Exams will be challenging. • Tentative dates for distribution/collection of
exams given in syllabus.– Adjustments may need to be made.
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Papers• There is a term paper in this class.
– Empirical papers encouraged.
• Meeting date: • Proposal due on Thursday, 10/3 at beginning of class.
(3% of course grade) – Note error in syllabus– Late penalty of 5% per day
• Final draft due Thursday 11/21 at beginning of class. (17% of course grade)– Late penalty of 5% per day– Guidelines on web page. Read these carefully!
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Any verified plagiarism dealt with in a most severe fashion.
Costs very high!
Students have been expelled from school for these types of infractions.
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Class presentations and preparation
• Each student is responsible for several in-class presentations.
• You must read the article carefully, and then present it in class.– Presentation lasts 10-15 minutes.– We will discuss the findings and I will ask questions.– Goals: Enhance presentation skills and generate discussion
• I also expect preparation and participation– I expect each of you to read the articles in advance. I will
ask each of you specific questions re: article.
• Collectively worth 5% of course grade
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Final course grade:
• Calculation of weighted course averageExam 1 * 0.25 +
Exam 2 * 0.25 +
Exam 3 * 0.25 +
Paper proposal * 0.03 +
Final paper * 0.17 +
Presentation/preparation grade * 0.05
---------------------------------------------
= FINAL AVERAGE
• Plug average into Conversion Table below.
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Course Grade
• Letter Grade Percentage Grade
A: 95-100%
AB: 90-94
B: 80-89
BC: 75-79
C: 70-74
D: 60-69
F: <60
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What you earn is what you get!
• No options for extra credit. This is not fair to your colleagues.
• Also, you don’t typically get second chances in the real world.
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Urban and Regional Economics
What are these?
Name some urban problems.
How do we evaluate these in urban course?
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Traditional Economic Theory Ignores Frictions of Space
• How is this introduced?– Consumer behavior?– Producer behavior?
• Economists aren’t the only ones to evaluate frictions of space.
– How do we differ?
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How does Regional Economics differ from Urban Economics?
• Primary difference is in the geographic scale of the space being examined.
– Urban economics focuses on small geographic areas such as neighborhoods, towns and cities.
– Regional economics focuses on larger geographic areas such as partial or whole states, or larger regions.
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What is a city to an economist?
• A city is simply a population density or employment density blip in a distance continuum.
• Think of this in 3-dimensions (p. 70 – Wassmer)
Density
Distance
BaselineDensity
City Density
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Alternative Definitions of Cities• Urban Place (aka Municipality or MCD)
– Incorporated town, borough or city with pop.>=2500.– Based on arbitrary jurisdictional lines.– This is political city.
• Is it necessarily an economic city?
• Urbanized Area– 1 or 2 central cities with pop>=50,000 plus the surrounding
settled areas w/ pop. density>1k/acre.– Includes parts of counties.– Problem for economists?
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Metropolitan Areas (MA’s)• Metropolitan areas
– Central city with at least 50k persons plus its county, plus surrounding counties so long as they are integrated with the central city.
– Integration determined by the amount of commuting between county and the nucleus.
– Counties are the building blocks, and hence there is a lot of data.
• Standalone MA’s called MSA’s• Weakness of definition?
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Consolidated MA’s• These are MA’s that have grown together.• The component MA’s are known as PMSA’s
(primary metropolitan statistical areas)– Two PMSA’s in Milwaukee
• There are approximately 20 of these.– Largest is NY CMSA which contains parts of CT, NY, NJ
and PA, and has about 18 million people.
• Metropolitan definitions are designated by the Census, and they are updated about every 5 years.
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Sub-metro areas
• Every 10 years the Census does a population census and examines the detailed spatial distribution of the population.
• Within cities, geographic areas called census tracts, and smaller census blocks are defined.
• Advantage: Very detailed.
• Disadvantage: Only once a decade.
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Lets look at some pictures generated using a simple GIS package.
• Software combines mapping software with data.
– Look at Census data
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Noncredit Assignment Form 3 groups of 2-3 people:
Group I: Identify data sources at MSA level Group II: Identify data at the sub-MSA level
(specifically central city/suburban ring) Group III: Identify data at the census tract/block
group.
Look at Internet and Library for Overview
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Give 1-2 page report (9 copies of each) identifying the following:
• Data categories (e.g., housing, household income, labor market).
• Frequency in which data is published (periodicity).
• Geographic scope of data.
• Complete data source and where it can be found.
• Give 5 minute overview to class next time.
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Why do cities exist?
• Some cite historical accident.
• Economic perspective:– Economic agents (households, firms,
government agencies) have found it advantageous to congregate in a spatially concentrated manner.
• There are economic forces at work. – Lets get a little more precise.
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Three Commonly Cited Reasons for the Existence of Cities
• Comparative Advantage– Cost savings associated with unequal distribution of
resources and hence differences in opportunity costs of production.
• Internal Economies of Scale– Cost savings associated with increased firm size.
• External Economies of Scale– Cost savings associated with increased industry or city
size.
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Comparative Advantage
• We learn about this in International Trade• When different countries have different resource
allocations, we can determine flows of trade by examining comparative advantage.
• Think of examples for cities.– What is Milwaukee’s comparative advantage?
• Note:– Not actually a reason for the existence of cities.– Where cities locate, not why they locate
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Internal Scale Economies
• Internal to production function.– Look at homogeneous production function
• nQ=f(nK,nL,nD)– if then there are increasing returns to scale.
– if then there are constant returns to scale.
– if then there are decreasing returns to scale.
• Here we are talking about getting bigger in a spatially concentrated manner.
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Sources of Internal Scale Economies
• Higher K/D and L/D ratio implies less movement of materials and thus lower per unit costs.
• May be able to take advantage of greater specialization.– e.g., in-house computer technician may not be viable
until you reach a certain size.
• These are absolutely necessary. Why?• In several weeks, we will come back to this topic
when we look at Central Place Theory.
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Agglomeration Economies Externality in production.
What is this? Q=G(N)*f(K,L)
N=indicator of city size or industry size
• Note that the agglomeration effect, G(N) is external to the firms’ production function, f(K,L,D)
• Economies of Agglomeration: G/N>0• Diseconomies of Agglomeration: G/N<0
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Agglomeration Economies and Diseconomies
NN
IR to externalIR to externaleconomieseconomies
DR to externalDR to externaleconomieseconomies
Cost Cost (time)(time)
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Urbanization Economies• N is size of city• Cost savings from being in larger city.
– Better business services (greater variety).
– Economies of scale in input supply for all industries.
– Local labor market efficiencies• Complementarity (e.g., secondary labor market)
– Economies from interaction - Jacobs argument• Inter-industry knowledge spillovers
• How do we know these are eventually exhausted?
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Localization Economies• N is size of industry in which firm is operating.• This is clustering of firms in an industry
– e.g., Silicon Valley, Detroit, etc.
• Sources– Firm specific business savings due to scale economies
in intermediate inputs.– Unique labor markets– Knowledge spillovers (intra-industry)
• Can lead to Incubation process– Valuable initially, later erodes
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Article by Ray Vernon
• Vernon looks at NYC in the late 1950’s and looks at a number of its disadvantages:– No natural resource advantage– high relative wages– costly commuting expenses– declining importance of port
• Yet certain types of companies continue to locate there.
• Why?
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Common Characteristics
• Establishments with low overhead.– Why?– Look at Tables 1 and 2
• They face an uncertain future– Survival requires ability to adapt quickly.
• They continue to rely upon face-to-face contact– Why not other forms of communication?
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Look at some of his examples• Small dressmaking shops
– Rapidly changing environment.
– Need to meet with specialists from other firms frequently.
• Military electronics– Products are unique and change rapidly.
• Printing– Unique jobs
• Publishing– Use of specialists
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These are Agglomeration Economies
Urbanization or Localization?
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Parallels to Corporate HQ’s
• Many firms have their corporate headquarters in NYC. – 156 of Fortune 500 in 1958.
• They face uncertain future.• Corporations need to make use of banking,
economic, financial, legal, accounting specialists.• Advantage of being near Wall Street.• Need to be able to respond quickly.
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Why firms leave?
• Advantages can erode.– Example of insurance companies.
• As technologies mature, some activities are get exported to lower cost production areas.– Radio example.
• As industry grows, pull to lower cost regions grows.
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Empirical Evidence on Agglomeration Economics
• MSAE emphasizes empirical tools.
• Briefly look at findings of one paper that estimated agglomeration economies.– Looked at both urbanization and localization
economics
• I haven’t assigned this, but for those who are interested, the citing is:– Ronald Moomaw, “Agglomeration Economies: Localization
or Urbanization: Urban Studies, 1988, Vol 25, pp. 150-161.
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Empirical Approach• Take a specific form of the production function.
– Assume specific form for urbanization and localization economies.
• Manipulate this equation so that it can be estimated.– Mathematically derive a labor demand function based
on marginal productivity theory of production.
• Estimate parameters of urbanization and localization.
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Findings
• Most urbanized industries typically have significant urbanization and/or localization economies.
• Least urbanized industries have no urbanization or localization economies.
• Agglomeration economies are primarily localization economies.
• Some evidence of diseconomies of urbanization.
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Agglomeration in Marketing
• Shopping externalities– Why do these exist?
• Imperfect substitutability• Complementarity in goods
– Shopping malls– Retail clusters
• These have been changing – Why and how?
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History of Urbanization• Look at figure in book (2-4)
– Urbanization at about 7% in 1800– Urbanization at about 75% by 1990.
• Variety of factors at work• Look at Role of Industrial Revolution
– Agricultural Revolution– Manufacturing Revolution– Construction Revolution
• Mr. Otis’ contribution
– Transportation Revolution• Inter- and intra-city
– All were necessary, none was sufficient to generate urbanization.
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History of U.S. Urbanization:Centralization and Concentration
CentralizationCentralization DecentralizationDecentralization
19201920
ConcentrationConcentration DeconDecon ConcentrationConcentration
19701970 1980198017901790
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Reasons for Decentralization
• Automobile has lead to suburbanization of population and employment.
• Blight-flight process has reinforced this process.– More later in semester.
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Limiting Factors on City Growth
• What factors limit size of cities?– Internal scale economies– Agglomeration economies– Market size and transportation expenses– Congestion and compensating differentials
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What does the Future Hold?
• Telecommunication innovations
• Should these strengthen or weaken pull towards cities?
• Are these substitutes or complements?– Can we completely substitute away from face-
to-face communication?