Urban Economics ECP 4613 Second Set of Sample Test Questions Dr Ihlanfeldt 1 Define the following terms and explain their significance to urban economics a exclusionary zoning zone out high density housing have a minimum lot size requirement Artificially inflates the price of housing Significant b c it excludes people mostly low income from job opportunities better schools contributes to housing segregation b index of dissimilarity A measure of inequality Index that shows the proportion of one race that must relocate to achieve perfect racial integration with each census tract in the metropolitan area having the same racial mix Scales is 0 100 0 is perfect integration 100 is perfect segregation It also shows the proportion of one race that must relocate to achieve racial integration Ex In the US 0 64 indicates that to achieve complete integration 64 of African Americans or Whites would have to relocate c fiscal zoning trying to keep out free riders who use public serves Uses similar methods as exclusionary zoning minimum lot size requirement limit apartments Reason it s important makes it difficult for those who can t afford it to live there causes fiscal deficit Zone used to ensure households or firms maintain a fiscal surplus not a deficit Surplus occurs when a land users tax bills exceeds the cost of public services provided d development impact fees A way to deal with free riders create fees on new development that offset additional costs to infrastructure capital public services Thus addressing the market failure of new fringe development Used to limit a cities population This only solves a fiscal problem and not a growth control policy Significant because it represents a prime market failure Imposes a negative externality on everyone else because they aren t being compensated I would add that it is presented as a possible strategy to slow sprawl but only if the fees hinder the developer s ability to fund their projects 2 Zoning a What rationale can be given for the use of zoning within urban areas market failure occurs Certain kind of land uses generate negative externalities Separates incompatible land uses from each other and prevents over intensive development of certain areas A Zoning can be used to separate pollution sources from residential areas b Do you believe this rationale is valid Why or why not Idea is valid Issue is if it is the best approach maybe taxes and subsidies may be better A Zoning is appealing because it is simple the easiest way to reduce the exposure to pollution is to put a buffer between a polluter and its victims c State and evaluate at least two of the arguments that have been made for eliminating zoning Zoning is redundant market already drives things that way Another reason restrictive covenant is done at the lowest level that already push zoning on its natural path An example of this would be Houston where there is little zoning but commercial and industrial zones naturally shift towards grouping with one another in strips of areas Other main problem is that it is exclusionary as discussed above more integration would be beneficial Overlooks land use benefits of a particular firm in a particular industry ex Cost benefit analysis to see that gains factory pollution jobs tax base Potential for corruption is a huge issue unfair influence bribes between developers and city councils for instance drives zoning where it ordinarily wouldn t be offered to others 3 Carefully state the following hypotheses and indicate their testable implications a The redlining hypothesis Say banks take a map of the city and section off what areas they will make loans to Test for this by getting mortgage applications credit score data race gender etc and then evaluate Often find that there isn t a huge redlining problem the neighborhood doesn t really factor in b The price discrimination hypothesis Does another ethnicity pay the same fair price to move into another area Hypothesis says that a black person will pay more to live in the same area Testing would be looking at same area house setup and see if there are discrepancies Correct but another way to explain it Hypothesis states a lower class individual looking to buy a house in a higher class area will pay a higher price than what the high class individual paid The theory says this will happen because people have a case taste for discrimination and essentially need to be compensated for the disutility they experience from interacting with a lower class individual To test for this one can again send in testers c Supply restriction exclusion hypothesis segmented markets conspiracy among home sellers realtors apartment managers etc to make it difficult for ethnicities to move into a restricted area Testable implication is that AA have a lower home ownership rate 4 Segregation a List and carefully explain three reasons why urban economists consider housing segregation between whites and blacks a major social problem Segregated schools are very inefficient creates spatial mismatch have high levels of concentrated poverty High income households are willing to pay more than low income households to live in low crime neighborhoods so crime encourages income housing segregation Also an issue of fairness since segregation is not entirely voluntary b What polices would you propose for reducing segregation within America s cities Defend your choices based on either economic theory or empirical evidence Audit people who seem to be discriminating Create testing to evaluate whether a renter realtor lender ect is guilty of doing so another policy could be to issue a home value insurance which have proven to be moderately successful at keeping higher income groups from moving out scarce means to air for downtown may as racial transitions begin put in services to offset and raise the value of the neighborhood 5 Sprawl a Why is urban sprawl considered to be a problem by urban economists Viewed as market failure by economists See Brueckner Article Results in 1 Underprice of automobile transportation relative to externalities congestion pollution 2 fringe development imposes additional costs on existing infrastructure and public services 3 Loss of open space positive externality Urban Sprawl refers to EXCESSIVE spatial growth of cities Cities take up too much space encroaching excessively on agricultural land Aesthetic benefits from the presence of open space are lost and an allegedly resource namely farmland is depleted Excessive