Study Guide 2 Urban Economics ECP 4613 Dr Ihlanfeldt 1 Define the following terms and explain their significance to urban economics a Exclusionary Zoning refers to the utilization of zoning ordinances to exclude certain types of people from a given community specifically low income people Exclusionary zoning contributes 1 to residential segregation 2 urban sprawl out on the fringe and 3 contributes to the spatial mismatch issue as well b Index of Dissimilarity is a demographic measure of the evenness in which 2 groups are distributed across component geographic areas that make up a larger area It is considered very important because a problem has to be measured before you can find a way to solve it c Fiscal Zoning are the zoning regulations that are meant to improve a local jurisdiction s tax base by attracting occupants whose contributions in taxes exceeds their use of public services It also helps as a motive to prevent and reduce free riding d Development Impact Fees idea proposed by Jan Brueckner in order to solve the urban fringe development problem It refers to a fee that can be imposed by local governments on new or proposed developments projects in order to pay for all or a portion of the costs of providing public services to a new development area In most cases these fees are implemented in order to help reduce the economic burden on local jurisdictions that are trying to deal with population growth in certain areas e Doctrine of Highest and Best Use this idea argues that if there are no externalities in a market we can allocate properties to the highest bidder who will get the most efficiently use of the land However externalities do exist therefore they have to be address first in order to get the highest and best use of doctrine f Leftover Principle indicates that competition among producers leads to bidding process for land Generally producers bid more for land that can produce more driving economics profit to 0 in order to cover all costs Therefore the land owner will get the lefts over after all other production factors are paid Important because it reflects that rent and PV are demand determined Rent TR TC TR PQ TC AC Q 2 Zoning a What rationale can be given for the use of zoning within urban areas Mainly to control externalities and market failures for example prejudice or free rider problem each is based on a different motivation purpose b Do you believe this rationale is valid Why or why not There is no legitimate rationale for zoning because there is a better way to address externalities taxes and subsidies c State and evaluate at least two of the arguments that have been made for eliminating zoning 1 It is being used for a purpose that government cannot validate government failure in trying to use zoning could be worse than market failure caused by negative externalities 2 The market does not need zoning because externalities are being taken care of in other ways like through neighborhood covenants bill laws which make zoning redundant 3 Carefully state the following hypotheses and indicate their testable implications a The Redlining Hypothesis is the practice of denying services it can be directly or through selectively raising prices to residents of certain areas based on the racial or ethnic makeups of those areas regardless of applicable credit After running a regression model economist found that redlining had no statistical significance the reason was not that banks did not want to loan but that people did not want to borrow Hypothesis claimed that banks would not offer loans in areas where price of housing was declining A drop in price means that the homeowner won t be able to sell his house for enough money to pay back loans Many times no loans were given out in inner city neighborhoods where blacks lived Supply of loans in these neighborhoods was low but upon investigation it was found that demand was low as well Redlining was not the issue rather discrimination against race gender Testable implications made financial institutions release info on areas where housing mortgages where issued this showed that loans weren t being issued in the CBD b The Price Discrimination Hypothesis within white submarket Afro Americans pay more because whites experience disutility from dealing with Afro Americans Few studies on price discrimination found that such discrimination exist in white and Hispanics against Afro Americans and Asians On the other hand Afro Americans and Asians do not discriminate against anyone When blacks penetrated white neighborhoods white homeowners would discriminate against blacks by charging a higher price for housing to compensate for disutility experienced in dealing with blacks as compared to whites buying in white neighborhoods whom were charged les Testable implications Intra neighborhood within a neighborhood studies that looked at prices of homes controlled for all factors that affect the price of housing when bought and compared it to race of buyers and see if blacks were paying more than whites Found blacks where being charged more c Supply restriction exclusion hypothesis Afro Americans are excluded from white submarket whites will not rent or sell to Afro Americans realtors will not show house to Afro Americans in white submarkets banks will not loan to Afro Americans who want to buy in the white submarket Pb Pw housing costs more in black than white neighborhoods which makes home ownerships lower among blacks As African Americans move into white neighborhoods whites try to keep them out Increase in demand as AA move into white neighborhoods but can t increase supply because of boundaries won t sell or rent to them Testable implications Inter neighborhood Across neighborhoods comparisons blacks in their neighborhoods pay more than whites in their neighborhoods 4 Segregation a List and carefully explain three reasons why urban economists consider housing segregation between whites and blacks a major social problem 1 It is not voluntary due to discrimination and it is unfair because equal opportunity does not exist in the housing market 2 Segregation leads to concentrated poverty which leads to bad neighborhoods and schools leading to bad behaviors Therefore neighborhood poverty rate will increase over time 3 Segregation also leads to spatial mismatch is the mismatch between where low income households reside and suitable job opportunities No jobs in central city but many jobs in suburbs b What polices would you propose for