Urban EconomicsECP 4613Review Questions for Final ExamDr. Ihlanfeldt(1) “Neighborhood succession is the process whereby the housing stock of a given neighborhood undergoes over time successive reuse by occupants of ever lower income levels.”a) How does the arbitrage model explain neighborhood succession?-The model shows that all households prefer neighborhoods with higher income families,(thus as low income families move into a neighborhood high income families will move out seeking higher income neighborhoods. The neighborhood then transitions from high income to low income as high income moves out and low income moves in. b) What are the welfare implications of the arbitrage process for the households on each side of the border (i.e., are these households made better off or worse off from arbitrage and why?) -On the low income side people will have a higher supply of houses to choose from thus getting more housing for their housing dollar. However as succession occurs and low-income moves into old high-income houses abandonment occurs in the leftover low-income housing. Abandonment decreases neighborhoods housing value as it breeds crime. Jobs move with high-income people, schools are made worse off public services decrease. High-income people if they are not quick to move out can suffer capital losses.Even if they are quick high income will incur moving costs and higher commuting costs as they move farther away from low-income inner city neighborhoods.c) What policies might be adopted to slow down or stop arbitrage that would be equitable to both groups?- As transition begins to occur local governments must stem panic selling by improving schools, police force, local parks and roads. This will give incentive for people to stay. - Offer home value insurance, which protects properties from losing value. People will stay in a neighborhood if they are not concerned about their property losing value.(2) “Neighborhood succession is the process whereby the housing stock of a given neighborhood undergoes over time successive reuse by occupants of ever lower income levels.”a) How does the filtering model explain the neighborhood succession process? - Housing quality decreases over time because of physical deterioration, technological obsolescence, and changes in housing fashion. High-income peoples desire newer houseswith nicer amenities, thus houses will be sold down the line High income to middle to low until the house is abandoned (maybe 30 years later). As dwelling moves down the quality ladder households with progressively lower incomes occupy them. b) Carefully explain how the filtering model has been used to justify subsidy programsfor the non poor- Tax subsidies and low mortgage interest rates on newer houses will make it easier for high income peoples to move into newer houses thus accelerating the filtering processand making better housing, out of the inner city and closer to job creation, available to the poor sooner. c) Critically evaluate the welfare implications of the filtering model (i.e., that the poor are benefited by the filtering of housing).- The poor are benefitted in that filtering will be accelerated thus they will be able to move out of inner cities into the suburbs and closer to job creation, better schools, overallbetter neighborhoods. A downside is that the upkeep of these homes may be out of low-income peoples budget as newer, higher quality homes are reaching them faster than theirbudget can afford to upkeep them. (3) “In comparison to public housing, housing allowances are both a more equitable and a more cost efficient means of improving the housing welfare of poor people.” List and explain, as many reasons as you can that would support this quotation.- Housing allowances, as opposed to stationary public housing that is located in bad neighborhoods, would give low-income people more mobility in their housing preferences i.e. they wouldn’t be forced to live in the bad neighborhoods they could moveinto the suburbs closer to jobs, and better schools. - Housing allowances rely on the private sector to supply housing rather than the public sector of which only 10% of the people eligible for public housing can get it because there’s not enough. Thus housing allowances for private sector housing will offer homes to all who are eligible. Efficiency is increased. (4) William Julius Wilson has stated, “Bad neighborhoods breed bad behaviors.”a) Discuss the different ways in which the neighborhood environment can influenceindividual behavior.- Peer group effects: people are very receptive to behaving in a way that is accepted by others, typically true with youth.(- Adult effects: Adults are role models for the youth, middle to high-income adults create job networks that spread job information (opportunities, availabilities etc.) b) What policies might be adopted to improve the neighborhood environments of poor people?- Housing allowances: which give mobility to low income people so that they can move out of high concentration poverty areas into better neighborhoods with better role models, access to job networks, and peer groups. - Stem white flight by offering home value insurance or improving neighborhood conditions- Scattered site public housing: lower density housing no high rises or concrete jungles, spread out to fit in with landscape and reduce contact with negative peer groups.(5) Public transit is not succeeding within America’s cities: costs greatly exceed revenues, ridership has been declining, and the transportation needs of the poor are notbeing met. Propose and defend a set of policies, which you believe would improve publictransit. Make your program for improvement fiscally practical in light of present day budgeting limitations.- Increase fares for public transit: transportation is inelastic thus it would raise revenue and government could spend this money on expanding public transit lines and making public transit more convenient (shorter wait times, increasing amount of buses/amount of stops).- Privatize public transit: It would be less costly for the private sector because they wont be tied to union wage scales. Privatized public transit would give more choices to people in terms of types of transportation and privatizing would increase incentive for innovation. - Decentralize the system: The typical system is a radial system where you go down to the center and then change to go to your destination. Now we are trying