Urban Economics ECP 4613 Review Questions for Final Exam Dr 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 All households prefer neighborhoods with high income single family houses Opportunity arises to turn single family home to multi family for profit People panic in fear that their home will lose value as the neighborhood is changing and homeowners believe they must sell or face capital loss Panic is exponential in nature 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 Higher income people are made worse off o If they don t get out fast enough they will experience capital loss o If they do get out before capital loss they still incur moving costs Lower income people think they make out okay but lose in long run o Short run gain access to better housing because increase in supply o Long run Community suffers because tax base is diminished when higher income people leave Jobs also tend to follow higher income individuals c What policies might be adopted to slow down or stop arbitrage that would be equitable to both groups Stop Panic Home Value insurance Improve neighborhood when change starts to make people think twice about leaving 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 Slowly explains how neighborhoods go from affluent to poor to abandonment o Higher income people want newest houses in suburbs for all their new bells and whistles 100 year old house needs to be abandoned o Like arbitrage when higher income people leave so does the tax base b Carefully explain how the filtering model has been used to justify subsidy programs for the non poor Instead of staying in home 5 years subsidy may incentivize higher income people to leave after 3 getting lower income people into better housing earlier c Critically evaluate the welfare implications of the filtering model i e that the poor are benefited by the filtering of housing Houses still age Only a small short run improvement but still lose tax base and job opportunities with the departure of high income individuals 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 Only 10 percent of qualified individuals get into public housing shortage Vouchers allows everyone to get something More efficient Spend voucher where they need it most Allows them to live where they want not just where public housing is offered 4 William Julius Wilson has stated that bad neighborhoods breed bad behaviors a Discuss the different ways in which the neighborhood environment can influence individual behavior greatly affect youth behavior i Peer group effect negative in low income areas ii Adult role model effect More established in affluent areas iii Social Control People are held accountable for their behavior more in affluent areas More eyes in the street iv Social Isolation How can you find work if nobody in low income neighborhood is working Lacking information on jobs b What policies might be adopted to improve the neighborhood environments of poor people 1 Incentivize higher income individuals to stay when neighborhood begins transition period 2 Control crime level 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 not being met Propose and defend a set of policies which you believe would improve public transit Make your program for improvement fiscally practical in light of present day budgeting limitations 1 Allocate public funds to buses rather than rail lines a Rail is much more expensive than buses and little affect on automobile congestion i 150 million for each mile of rail 2 Raise Prices of Mass Transit a Increase in revenues will allow you address reasons people don t use it Distribution Collection Times Increase Ridership b Subsidize for poor because they are transportation disadvantaged 3 Transportation Orientation Development a Focus residential and commercial development around these MT stations Proximity to station Comfortability when you get there 4 Transition back to Private Transit Companies to gain operational efficiency a Contract out some operations that may be inefficient i Exorbitant union wages inefficient route services etc b Anyone who wants to provide service can Economic competition i Must operate at Marginal Cost or else enterprise will fail 6 Explain the rationales for restricting entry in the market for urban transportation services i e why does the government prohibit private firms from offering public transit services List and explain some advantages to society if entry was free into the market for urban transportation services 1 Cross Subsidization Argument Profitable routes subsidize non profitable routes so you can have a complete system a Private Sector would go after routes with high ridership and leave low ridership routes to get public funding But funding goes w loss of profitable route Reality Low ridership routes could be profitable if they were funded by private sector wage o Private company would use a van for low ridership routes not a bus o Private company would pay competitive wage not exorbitant union 2 Transit is a natural monopoly Monopoly does not operate at the socially optimal level Incentive to under provide to achieve profit maximization Reality While MT may be perceived as a natural monopoly in cities like cable and water lines evidence doesn t really support this claim for anything other than rail Rail has exorbitant expenses Advantages etc 1 Privatization would offer more choice Smaller buses vans ridesharing a People have diverse preferences More choice More interest in MT Higher Ridership Less auto congestion 2 Would address reverse commuter issues MT is radial in nature Decentralized jobs in suburbs are not accessible from transit lines a Private sector would see this as an