Readings in Urban Economics: Issues and Public Policy
Edited By
Robert W. Wassmer
Associate Professor of Public
Policy and Economics
Graduate Program in Public Policy and Administration
California State University, Sacramento
Published in January 2000
Blackwell Publishers
Malden, Massachusetts
Readings in Urban Economics: Issues and Public Policy is an accessible collection of newspaper, magazine, and academic journal articles. Rather than just summaries of urban economic theory, this book instead offers popular and academic summaries of the important public policy issues faced by urban areas as they enter the 21st Century. These issues include urban growth, urban sprawl, economic development incentives, race and employment, public primary and secondary education, housing, crime, transportation, and local government. The reader provides material that allows for a more in-depth, up-to-date, and real-world analysis of the material contained in textbooks on this subject. Thus it works well as a companion reader.
The background necessary to enjoy this reader is no more than an understanding of the material taught in an intermediate undergraduate course in microeconomics and a course in applied regression analysis. The book’s intended audience ranges from upper-level undergraduate students to graduate students taking courses in urban economics, policy, studies, affairs, or planning. For a doctoral course in urban economics that emphasizes economic theory, this volume works as a recent look at issues that still require the further attention of economic theory. As a current summary of recent academic work on their craft, this collection of readings should also appeal to urban academics, practitioners, and policymakers.
An editor's introduction provides the motivation for the volume, a brief summary of recent numbers relating to U.S. urban issues, and a summary of every article contained in the volume. Beyond the editor’s introduction, the volume is divided into nine parts that each cover the important issues faced by urban areas. Each part has at least one recent popular press article on the issue. Second, each part has at least one current review of the applied economics literature on the topic. Each part also has a contemporary, regression-based, empirical study of the issue under consideration and an annotated list of further readings to consider. Finally, to assist in the understanding and evaluation of the articles, each part contains a list of questions that can form the basis of classroom discussion or individual contemplation. At the end of the volume there is an appendix that lists the major academic journals in urban economics and policy, their web addresses, and a brief description of each.
To my parents, Bob and Sandra Wassmer
About the Editor
Rob Wassmer holds a B.S. in economics from Oakland University in Rochester, Michigan (1983); an M.A. in Economics from the State University of New York at Binghamton (1985); and a Ph.D. in Economics from Michigan State University (1989). Before arriving in California in 1995 he held the position of assistant professor in the Department of Economics and research associate with the College of Urban, Labor, and Metropolitan Affairs at Wayne State University in Detroit. He is now an associate professor in the Graduate Program in Public Policy and Administration at California State University, Sacramento. Professor Wassmer also holds the position of director of the system-wide California State University Faculty Fellows Applied Research Program that is managed by the Center for California Studies at Sacramento State. His research on topics relating to urban economic development and state/local public finance has appeared in Government and Policy, Journal of Housing Economics, Journal of Urban Economics, Land Economics, National Tax Journal, Public Budgeting and Finance, Public Choice, Public Finance Review, Regional Science and Urban Economics, and Urban Studies. Professor Wassmer has a book, co-authored with John Anderson, Bidding for Business: The Efficacy of Local Economic Development Incentives in a Metropolitan Area, published by the Upjohn Institute for Employment Research. He maintains a web site at http://www.csus.edu/indiv/w/wassmerr .
Acknowledgements
Al Bruckner, Executive Editor at Blackwell, was the first to see the need for this book and encouraged me to produce it. Six outside reviewers, who have remained anonymous, read the initial prospectus and offered comments that shaped the book’s final form. Katie Byrne, Development Editor at Blackwell, energized me to completion and smoothed out all of the technical details on the way.
I am most grateful to the scholars that introduced me to the subject of applied and policy-orientated urban economics and continue to keep me interested in it today. These include: John Anderson, Tim Bartik, Tom Bogart, Ralph Braid, Jan Brueckner, Jeff Chapman, Michael Dardia, Ron Fisher, Allen Goodman, Al Gutowsky, Bill Herrin, Harry Holzer, Larry Ledebur, Joyce Mann, Terri Sexton, Steve Sheffrin, Ken Small, Dave Sjoquist, and Jon Sonstelie.
Table of Contents
Notes on Editor and Authors viii
Dedication xxii
Acknowledgments xxiii
1 Introduction
Robert W. Wassmer
Part I: Urban Growth 23
2 The Draw of Downtown: Big Growth Predicted for Many U.S. Cities
Dorian Friedman
3 The State of the Cities: Downtown is Up
The Economist
4 Urban Diversity and Economic Growth
John M. Quigley
5 Projecting Growth of Metropolitan Areas
Edwin S. Mills and Luan Sende Lubuele
Further Reading Samples
Discussion Questions
Part II: Location, Land Use, and Urban Sprawl
6 Dreams of Fields: The New Politics of Urban Sprawl
Timothy Egan
7 Al Gore Has A New Worry
George F. Will
8 Urban Spatial Structure
Alex Anas, Richard Arnott, and Kenneth A. Small
9 How America's Cities are Growing: The Big Picture
Anthony Downs
10 Prove It: The Costs and Benefits of Sprawl
Peter Gordon and Harry W. Richardson
11 Comment on Carl Abbott's "The Portland
Region: Where Cities
and Suburbs Talk to Each Other -- and Often Agree"
William A. Fischel
12 Do Suburbs Need Cities?
Richard Voith
Further Reading Samples
Discussion Questions
Part III: Local Economic Development Incentives
13 Ohio Looks Hard at What's Lost Through Business Subsidies
Neal R. Pierce
14 Jobs, Productivity, and Local Economic
Development: What Implications
Does Economic Research Have for the Role of Government
Timothy J. Bartik
15 Sports, Jobs, and Taxes
Roger G. Noll and Andrew Zimbalist
16 Can Local Incentives Alter a Metropolitan City's Economic Development?
Robert W. Wassmer
Further Reading Samples
Discussion Questions
Part IV: Race, Employment, and Poverty in Urban Areas
17 Big U.S. Cities Carry Welfare Burden: Deep
Poverty, Isolation from
Suburbs Keep Many from Independence
Laura Meckler
18 Race Panel Divided Over Poverty: Experts
Disagree on Causes,
Cures of Urban Problems
Louis Freedberg
19 No Easy Way Out: Study Finds Urban Poverty Digs Heels In
Jamie Woodwell and Susan Rosenblum
20 Inner Cities
Edwin S. Mills and Luan Sende Lubuele
21 Information on the Spatial Distribution of
Job Opportunities within
Metropolitan Areas
Keith R. Ihlanfeldt
Further Reading Samples
Discussion Questions
Part V: Urban Public Education
22 Why I'm Reluctantly Backing Vouchers
Arthur Levine
23 Current Issues in Public Urban Education
Lawrence O. Picus
24 Why is it So Hard to Help Central City Schools?
William Duncombe and John Yinger
Further Reading Samples
Discussion Questions
Part VI: Urban Public Housing
25 Miracle in New Orleans: What Do a Bunch of
College Professors
Know About Fixing Public Housing Projects? A Lot, it Turns Out
S. C. Gwynne
26 Urban Housing Policy in the 1990s
Stuart A. Gabriel
27 The Dynamics of Housing Assistance Spells
Thomas L. Hungerford
Further Reading Samples
Discussion Questions
Part VII: Urban Crime
28 The Mystery of the Falling Crime Rate
David C. Anderson
29 Bright Lights, Big City, and Safe Streets:
Urban Dwellers Bask in
Greater Sense of Security, as Crime Rates Drop Even Further
Leon Lazaroff and Jim Blair
30 Urban Crime: Issues and Policies
Ann Dryden Witte
31 Estimating the Economic Model of Crime with Panel Data
Christopher Cornwell and William Trumbull
Further Reading Samples
Discussion Questions
Part VIII: Urban Transportation
32 Or, Why Motorists Always Outsmart Planners,
Economists, and
Traffic Engineers: The Unbridgeable Gap
The Economist
33 You Ride, I'll Pay: Social Benefits and Transportation Subsidies
Janet Rothenburg Pack
34 Urban Traffic Congestion: A New Approach to the Gordian Knot
Kenneth A. Small
35 Infrastructure Services and the Productivity
of Public Capital: The
Case of Streets and Highways
Marlon G. Boarnet
Further Reading Samples
Discussion Questions
Part IX: Local Government 51
36 Why I Love the Suburbs
Debra Meyers
37 Metropolitan Fiscal Disparities
Roy Bahl
38 Economic Influences on the Structure of
Local Government in
U.S. Metropolitan Areas
Ronald C. Fisher and Robert W. Wassmer
Further Reading Samples
Discussion Questions
Appendix: Description of Academic Journals in Urban Economics
Index
List of Contributors
Alex Anas, Department of Economics, University of Buffalo
David C. Anderson, Writer, San Diego Union-Tribune
Richard Arnott, Department of Economics, Boston College
Roy Bahl, Department of Economics, Georgia State University
Timothy J. Bartik, Economist, W.E. Upjohn Institute for Employment Research
Marlon G. Boarnet, Department of Urban and Regional Planning, University of California, Irvine
Jim Blair, Writer, Christian Science Monitor
Christopher Cornwell, Department of Economics, University of Georgia
Anthony Downs, Economic Studies Program, Brookings Institution
William Duncombe, Department of Public Administration, Syracuse University
Timothy Egan, Writer, The New York Times
William A. Fischel, Department of Economics, Dartmouth College
Ronald C. Fisher, Department of Economics and Honors College, Michigan State University
Louis Freedberg, Writer, The San Francisco Chronicle
Dorian Friedman, Writer, U.S. News and World Report
Stuart A. Gabriel, Department of Finance, University of Southern California
Peter Gordon, Department of Economics and School of Policy, Planning, and Development; University of Southern California
S.C. Gwynne, Writer, Time Magazine
Thomas L. Hungerford, U.S. General Accounting Office and Department of Economics, The American University
Keith R. Ihlanfeldt, Department of Economics, Georgia State University
Leon Lazaroff, Writer, Christian Science Monitor
Arthur Levine, Teachers College, Columbia University
Luan Sende Lubuele, Department of Economics, Northwestern University
John Machacek, Writer, Gannett New Service
Laura Meckler, Writer, Associated Press
Debra Meyers, Citizen Editorialist, Buffalo News
Edwin S. Mills, Department of Finance, Northwestern University
Roger G. Noll, Department of Economics, Stanford University
Janet Rothenburg Pack, Wharton School, University of Pennsylvania
Lawrence O. Picus, School of Education, University of Southern California
Neil R. Pierce, Writer, Washington Post
John M. Quigley, Department of Economics and Goldman School of Public Policy; University of California, Berkeley
Harry W. Richardson Department of Economics and School of Policy, Planning, and Development, University of Southern California
Susan Rosenblum, Nation’s Cities Weekly
Kenneth A. Small, Department of Economics, University of California, Irvine
William N. Trumbull, Department of Economics, West Virginia University
Richard Voith, Economist, Federal Reserve Bank of Philadelphia
Robert W. Wassmer, Graduate Program in Public Policy and Administration, California State University, Sacramento
Anne Dryden Witte, Department of Economics, Florida International University
Jamie Woodwall, Writer, Nation’s Cities Weekly
John Yinger, Department of Economics, Syracuse University
Andrew Zimbalist, Department of Economics, Smith College
Part I: Introduction
America’s cities are rebounding from decades of decline thanks to a booming economy, but still have miles to go until they are truly healthy.
John Machacek
Editor’s Preface
Robert W. Wassmer, California State University, Sacramento
I chose the Gannet News Service story by Machacek (1998) to open this book of readings because it accurately summarizes the popular and professional perceptions of the condition of large U.S. cities and urban areas as they enter the 21st Century. Under a nationwide economic expansion that began over eight years ago, large U.S. cities and urban areas are by some indicators doing better at the end of the 1990s than at the beginning. But as Machacek points out, behind the veneer of economic prosperity are critical urban issues that refuse to go away. Since most of these issues have at least part of their causal roots in economic relationships, it is appropriate to use economics to better understand these issues and to try and derive suitable public policy responses. This book’s purpose is to further this cause by offering a collection of recent literature in applied and policy-orientated urban economics.
My motivation to put together a volume of articles on urban issues from an economic and policy perspective sprang from my own recent experience at developing and teaching a graduate level course titled Urban Problems, Economics, and Public Policy at California State University, Sacramento. This course is offered as an elective to Master’s level students in public policy and in economics. The catalog description summarizes its contents well:
Historical development, economics, and possible policy solutions relating to the most pressing
Problems facing central cities and urban areas. Problems discussed include poverty, crime,
urban abandonment, suburban sprawl, edge cities, deteriorating infrastructure, and fiscal stress.
Many textbooks on urban economics already exist. These texts do a good job at covering urban economic theory, important issues faced by urban areas and central cities, and possible policy solutions. But a graduate student, and even an upper-level undergraduate student, benefits immensely from exposure to direct and recent writings on a topic. Such exposure allows for a more in-depth and current analysis of issues covered in the standard textbook. Just the knowledge that these outside sources exist, and what some of them are, is also important.
To my dismay, I discovered that a recent book of readings on applied urban economics did not previously exist. In talking with urban economists I found that such volumes have existed in the past, but they knew of no recent compilations that would be accessible to upper-level undergraduate students and Master’s level graduate students. Thus the beginnings of what turned out to be the volume that you now hold in your hand.
The background necessary to follow the articles chosen for this volume is not much more than an understanding of the material taught in an intermediate undergraduate course in microeconomics and a course in applied regression analysis. As mentioned above, the book’s intended audience range from upper-level undergraduate to Master’s students taking courses in urban economics, urban policy, urban studies, or urban planning. The book is also appropriate as a reader for doctoral students in urban policy, urban studies, or urban planning courses. Though the policy nature of the articles chosen for this book may not make it wholly appropriate for use in a doctoral course in urban economics that emphasizes economic theory, it could be used as a recent look at urban issues that still need the further attention of economic theory. As a current summary of recent academic work on their craft, this collection of readings should also appeal to urban academics, practitioners, and policymakers.
In choosing the articles for this collection I first divided the topic of applied urban economics into the nine categories that represent the remaining eight parts of this book. These are urban growth, land use, economic development; race, employment, and poverty; public education, housing, crime, transportation, and local government. I am certain that many will quibble with this division, suggesting one or two topics that should be deleted or added. I went through the quibbling process myself. In the end I decided upon nine broad categories because they are what I think are the most interesting and the most relevant. The chosen topics also parallel many of the chapters already included in textbooks on urban economics.
There is also a method to the articles chosen within each of the remaining nine parts of this book. First, each part begins with at least one popular press article on the subject. These are taken from major U.S. newspapers and weekly newsmagazines. This approach, though nontraditional for a reader of this sort, is intended to frame the issue in a popular and current framework. Instructors who use this book of readings may want to consider sharing similar articles with their students that are more recent, or from a local newspaper. Even doctoral students can benefit from this real world foundation. Second, each of the remaining nine parts contains at least one review of the applied economics literature on the issue under consideration. These are written by prominent urban economists and in most cases offer their perspective on economic theory, empirical analysis, and public policy regarding a specific urban issue. Also, each of the remaining nine parts of this volume contains at least one regression based empirical study. These empirical studies were purposefully chosen for their public policy content. Their interpretation requires little more than an introductory exposure to statistical regression methods.
To insure that this book of readings is current and likely to remain so for awhile, I have as much as possible restricted my choice of articles to ones published after the mid-1990s. This book is not intended to be a collection of classic articles on urban economics. Instead, it is a current review of policy related work in the area. With the exception of verbal summaries contained in some of the literature reviews, there are no articles in this reader that are purely theoretical in their approach to analyzing an urban issue. This was a conscious choice on my part and based on the multi-discipline accessibility that I desired for this volume.
The applied and policy related urban issues that are important in one country or one region of the world are similar to what is important in other countries or regions of the world. But, to some extent they are also different. Thus an editor of a volume of this nature must choose a particular country or region as their focus before deciding upon the topics and articles to be included. My choice is the United States in particular and North America in general. The reader will find much overlap of the urban issues discussed here and those that are important in other areas of the world. Though if your focus is not the United States or Canada, you will likely need to supplement the readings contained here with ones more focused on the urban institutions and issues particular to the country or region of the world you are interested in.
After completing my review of the recent literature in applied urban economics I found more quality articles than could be possibly contained in a book of this sort. To share some of these findings, each of the remaining parts of this book closes with an annotated list of further readings. The annotation consists of the abstract from the article or a few paragraphs taken from it. A reader interested in the wider economic literature available on any of the topics included in this volume should begin by consulting this list of readings, and the references given at end of these articles and the full articles contained here.
To assist in the understanding and evaluation of the articles, at the conclusion of the remaining nine parts I also include a set of discussion questions based on the readings. The individual can use these to review their own comprehension of what they just read. An instructor could assign them as student exercises and the basis for classroom discussion. Finally, at the end of the volume there is an appendix that lists the major academic journals in urban economics and policy, their web address, and a brief description of each. This list of journals is provided to assist the reader wishing further academic articles on a particular urban subject. As noted in the appendix, many of the journal’s web sites have search engines that allow key word searches on previous contents and even the ability to download abstracts.
This introduction continues with a brief review of some numbers relating to urban issues in the United States. To keep these numbers contemporary, I focus on their values in the early and late 1990s. After the review of these numbers I offer a summary, done by each of the remaining parts, of all the articles contained in this volume. This provides an overview of all material in the book and should assist the reader interested in only a select reading of it.
Some Trends in the Numbers Relating to Urban Issues in the 1990s
As Machacek (1998) describes in the newswire article that opened this chapter, there are reasons to believe that U.S. cities during the 1990s made some progress towards reversing decades of decline. But as he also points out, there are other indicators that suggest little improvement in many of the issues troubling large cities and metropolitan regions. To shed further light on this, I offer next a very abbreviated statistical profile of central cities and metropolitan areas in the United States during the 1990s. All of the numbers cited in this section are taken from the 1998 Statistical Abstract of the United States (U.S. Department of Commerce, Bureau of Census). A more complete review of the appropriate numbers from U.S. metropolitan areas is later provided in Edwin Mills and Luan Sende Lubuelle’s (1997) article on Inner Cities contained in this volume.
The 1990s began with 79.7 percent of the U.S. population living in metropolitan areas. By 1996 this figure had risen only slightly to 79.8 percent. But in the four most populated states - California, New York, Texas, and Florida - the percentages of the state’s population living in metropolitan areas in 1996 were respectively 96.6, 91.8, 84.2, and 92.9. An examination of the ten most populated cities in the United States in 1996 - New York, Los Angeles, Chicago, Houston, Philadelphia, San Diego, Phoenix, San Antonio, Dallas, and Detroit - reveals that 8.8 percent of the country’s total population lived in these cities in 1990, while 8.4 percent of the population lived there in 1996. This decrease in overall large-city living in the United States occurred even though only three of these cities – Chicago, Philadelphia, and Detroit – experienced a decline in population between 1990 and 1996.
To illustrate the concentration of racial and ethnic minorities in large U.S. cities, note that 12.6 percent of the total U.S. population was African American in 1996 and 10.3 percent was Latino. In the same year, six of the ten most populated U.S. cities had more than twice the U.S. percentage of African Americans and Latinos living in their boundaries. At the extremes, in 1996 Detroit was 75.7 percent African American and San Antonio was 55.6 percent Latino.
Moving beyond simple demographics, 10.7 percent of the U.S. population lived below the poverty line in 1990. By 1996, even after five years of economic recovery, the percentage of the U.S. population in poverty climbed slightly to 11.0. Behind this slight increase in total poverty, African American poverty rates fell from 29.3 percent to 26.1. While the rate of Latino poverty rose from 25.0 percent to 26.4 percent, and the poverty rate of Whites rose from 8.1 to 8.6 percent. This slight increase in U.S. poverty could not be due to an increase in the percentage of U.S. high school students that drop out. The drop out rate in the U.S. between 1990 and 1996 fell from 10.1 percent to 9.4 percent. But, at the same time, the rate of African Americans dropping out of high schools rose from 10.9 to 11.0 percent.
The violent crime rate for the entire United States; or murders, rapes, robberies, and assaults per 100,000 population, was 732 in 1990. As Machacek emphasizes, by 1996 the violent crime rate in the United States had fallen to 634. The number of murders in the U.S. fell from 20,273 in 1990 to 15,848 in 1996. Though the rate of violent crime has recently fallen in the United States, there still are significant differences in the rate of violent crime between U.S. metropolitan and rural areas. In 1996 the violent crime rate in metropolitan areas was 715 per 100,000 population. In rural areas it was only 222.
Finally, during the 1990s there appeared to be no reduction in the love of private automobiles in the United States. In 1990, 82.2 percent of all dollars spent on private and for-hire transportation were on privately owned automobiles. By 1996 this figure had risen slightly to 83.0 percent.
Part II: Urban Growth
What are the determinants of urban growth? As recognized by Edwin Mills and Luan Sende Lubuele (1995), the answer to this question is important to both scholars and practitioners. For practical reasons, business and individuals like to know what the prospect for growth is before investing in a city or region, or deciding to leave or stay. For fiscal policy purposes, state and local governments also require an accurate forecast of growth. Part II of this volume offers a perspective on urban growth through two popular press descriptions of projections for continued growth in many of the United States’ central cities, an academic review of how diversity encourages urban growth, and an empirical analysis of the determinants of U.S. metropolitan growth.
The U.S. News and World Report article by Dorian Friedman (1998), that opens Part II, briefly describes the conclusion of a Fannie Mae and Brookings’ Institution Conference that many central city populations and particular downtown neighborhoods will continue to grow into the new millennium. The Economist (1998) article that follows offers a similar assessment by focusing on specifics that have occurred in one area of Chicago’s central business district. The Economist piece concludes that it was not just a strong economy that revived Chicago’s State Street in the 1990s, but the use of a redevelopment tool called Tax Increment Financing. The background necessary to begin to evaluate this conclusion is provided later in Part IV: Economic Development.
The review article by John Quigley (1998), "Urban Diversity and Economic Growth" stresses the role that diverse business enterprises play as a determinant of urban economic growth. Quigley describes four periods in which economists have intensely and uniquely studies cities. We are now in the fourth period and "bursts of understanding" are flowing from this period’s recognition of the agglomerative benefits of size and diversity in cities. Quigley also provides a review of the theoretical benefits of heterogeneity and empirical evidence in support of these theoretical benefits.
Mills and Lubuele (1995) conclude my choice of applied economic articles on urban growth with an empirical examination of what determines metropolitan growth. Using a simultaneous equation regression model and a data set drawn from 320 U.S. metropolitan statistical areas from 1970, 1980, and 1990, they find that jobs follow people more than people follow jobs and that high wages in a metropolitan area attract people. Forecasts for the year 2000 are given for population, employment, and wage for all U.S. metropolitan areas included in their sample.
Part III: Location, Land Use, and Urban Sprawl
Framed in popular terms like urban sprawl and edge cities, the debate at the local and regional level on land use in a metropolitan area is stronger than ever. With presidential candidate Al Gore leading the charge, this debate has even made the leap to the national political arena.
In its colloquial use, sprawl usually refers to unlimited outward extension of development in a leap-frog fashion, low-density new settlements, fragmentation of land use powers, transport dominated by private automobiles, widespread strip mall development, the reliance of trickle-down for low-income housing, and fiscal disparities among localities (Downs, 1998). Much of the blame for urban traffic congestion, air pollution, loss of open space, labor shortages in suburban areas; and concentrated poverty, crime, and poor public schools in central cities and inner-ring suburbs, has been placed on urban development that has been allowed to proceed in a sprawling fashion. Though others point to the benefits that unregulated land use decisions generate for citizens in metropolitan areas. These benefits include the preferred low-density lifestyle, broad choices of where to live and work, shorter suburb-to-suburb commutes, and the ability of higher socioeconomic groups to separate themselves from the problems associated with lower ones. Location and land use in U.S. metropolitan areas in the late 20th Century are truly issue that encompasses all the other urban issues included in this book. It is for this reason that Part III is the longest in the volume.
Part III opens with Timothy’s Egan’s (1998) article from the New York Times that describes the increased political saliency of urban sprawl. Nationwide, in the fall of 1998, voters approved nearly 200 state and local ballot initiatives designed in some ways to curb sprawl. Egan also describes the attempt by Vice President Gore to make sprawl a key issue in the upcoming presidential campaign. George Will’s (1999) column from Newsweek is offered as an alternative take on Gore’s support for a national public policy concerning sprawl. Not surprisingly, Will is of the opinion that smart growth to cure suburban sprawl is just the newest rationale for government growth. In this column he drives home the point that 75 percent more American families choose to live in sprawling suburbs rather than in compact central cities.
A summary of some of the previous academic literature on location and land use in urban areas is contained in a review of theoretical and empirical studies on "Urban Spatial Structure" by Alex Anas, Richard Arnott, and Kenneth Small (1998). Their review opens with a history and description of urban spatial structure in the United States and continues with background information on the various theoretical models adopted by economists to describe it (monocentric, polycentric, and agglomeration). Anas, Arnot, and Small conclude their review with a policy-centered discussion on the efficiency of sub-center formation, traffic congestion and decentralization, land use controls, and the role of government. This piece is a must read for those interested in a positive look at an issue that is more often discussed in a normative framework.
The review of academic thought on location and land use in urban areas continues with summary pieces from three prominent urban economists on opposite sides of the sprawl debate. In "Prove It: The Costs and Benefits of Sprawl," Peter Gordon and Harry Richardson (1998) make the case that sprawl is the preferred life-style of Americans and that critics of it vastly overestimate its social costs. Anthony Downs (1998) recognizes that sprawl provides benefits to individuals, but in "How America’s Cities Grow: The Big Picture," he chooses to emphasize the negative social effects of sprawl. To Downs the most egregious is the concentration of poverty in U.S. central cities and their inner-ring suburbs. He suggests that managed growth strategies be pursued in the United States after citizens are convinced of his belief that the social costs of sprawl are greater than the its private benefits.
In Part III I violate a standard upheld in other parts of this volume. The applied study by William Fischel (1997) is not regression or data based. Fischel describes his analysis of Portland’s use of an urban growth boundary to contain sprawl in its metropolitan region as a parable that employs simple economic principles. In the form of a story based in logic, he illustrates the new costs created by a public policy solution designed to reduce the social costs of sprawl. From his parable, Fischel derives policy alternatives, that he prefers to an urban growth boundary, to reduce metropolitan sprawl.
The regression study included in Part III is by Richard Voith (1998). His study provides some of the empirical evidence necessary to settle the continuing debate on what to do about location and land use decisions that generate sprawl. As Downs points out, the argument for adopting public policies designed to redirect housing and economic activities back to central cities is stronger if these policies also generate suburban benefits. Voith looks for the possibility of this benefit by empirically measuring the simultaneous relationships between central city and suburban growth in the United States between 1960 and 1990. Over this period he finds that greater income growth in large U.S. central cities resulted in higher income growth, house value appreciation, and to a lesser extent population growth in the suburban areas that surround them. This suggests the possibility that both cities and suburbs could improve their welfare through cooperative actions that reduced central city decline.
Part IV: Local Economic Development Incentives
An urban economics issue that has direct policy overtones is the use of local economic development incentives to try and sway the business location decisions of private firms. This issue naturally follows the previous discussion of land use and the generation of sprawl in urban areas because some have suggested that the appropriate use of incentives could help steer metropolitan economic activity back to its core. Though as the articles included in Part IV indicate, it is not certain that such a strategy would even work and whether the large dollar cost of such a strategy would be justified with equal or greater social benefits.
The first article in Part IV is a 1997 newspaper column by Washington Post writer Neil Pierce. In this column he applauds Ohio State Senator Horn’s attempts to truly assess the benefits of local subsidies to business relative to their cost. For instance, when a community provides a tax subsidy to a manufacturing plant do taxpayers win or lose? Pierce laments that such a question has not been appropriately answered because of the economic and political forces that steer policymakers away from an honest answer. As is shown in the remainder of Part IV, policymakers may just want to ignore the answers that have already been provided by economists.
Some of these answers have been clearly provided by Timothy Bartik. An example is his 1994 review of current economic thinking in regards to the relationship between local jobs, local productivity, and local economic development incentives. His review is designed to offer guidance to policymakers regarding the appropriate role of the local, state, and federal governments in offering and regulating the use of economic development incentives. Bartik concludes that the traditional financial and tax subsidies offered by local government in an attempt to buy local growth extort a high price per new job created. Reiterating some of the material presented in Part III, he argues that benefits large enough to justify such high costs are more likely to be found when incentives are successfully used in the distressed core of most metropolitan areas. Readers interested in specific policy prescriptions regarding local incentives do not want to miss the two hypothetical memos that Bartik writes to a Mayor of Jurisdiction X and to the President of the United States.
Public subsidies to privately owned professional sports teams is taken up next by Roger Noll and Andrew Zimbalist in an article that summarizes a 1997 book they edited on Sports, Jobs, and Taxes. Experts estimate that between 1997 and 2006, more than $7 billion of public revenues will be devoted to the construction of professional sport’s facilities. Though this is less than $50 billion in total expenditure on all economic development incentives over this period that was earlier suggested in Pierce’s column, it is still a significant chunk of change. Noll and Zimbalist describe the economic and political reasons why cities subsidize professional sports, the role of monopoly leagues, and what could conceivable be done to reduce these public subsidies. They are in favor of such a reduction because of the widely supported finding that a new sports facility has an extremely small or even negative effect on overall economic activity in a city or its metropolitan area.
Finally, in Part IV I include an article that describes my own statistical attempt at determining if local incentives exert any significant influences on various measures of local economic development. Proponents of the use of local incentives to encourage local economic development (like property tax abatements, tax increment financing, downtown development authorities, or industrial development bonds) suggest that they exert an additive effect. Such an effect can be defined as pulling a community above its long-term trend in local economic activity. In 25 percent of the cases of different forms of local incentive use in the Detroit Metropolitan Area, examined through an appropriate regression procedure, I find no significant additive or negative effect. Meaning the incentive offer did nothing. While in 44 percent of the cases the offering of a particular local incentive is significantly correlated with the community falling below its long-term trend in economic development after the incentive is offered. In only 31 percent of the cases is the usual presumption of a local incentive generating an additive effect justified. Also, certain types of incentives exhibit the desired additive effect in only communities where local characteristics thought to repel business are the largest. Results from regressions of the type presented in this article could be used by policymakers to decide which incentives are the most effective in a city, which incentives a city should not use, and even which incentives should be abandoned by all cities.
Part V: Race, Employment, and Poverty in Urban Areas
In Part V I have gathered three popular press articles, a review article written by two prominent urban economists, and a survey based regression study that cover the important interrelated issues of race, employment, and poverty in urban areas. As documented in Edwin Mills and Luan Sende Lubuele’s review article on Inner Cities, minorities (especially African Americans and in some places Latinos) are disproportionately located in the central cities of the United States. This fact, and the fact that the majority of metropolitan growth in the last half of this century has occurred in the suburbs, has motivated economists to look specifically at the issue which is the subject of this chapter.
The spatial mismatch hypothesis states that suburban growth and racial/economic housing segregation have combined to create a surplus of low skill minority workers in central cities and a shortage of low skilled workers in the surrounding suburbs. If true, this occurrence contributes to the higher unemployment and poverty rates observed among some minorities in the U.S. The obvious policy solution is to do something to correct this mismatch.
Part V opens with an associated press article by Laura Meckler (1999) that describes the influence of spatial mismatch on recent efforts to reform the welfare system in the United States. Using Detroit as an example, Meckler points out that the largest cities in the United States are home to an increasingly larger percentage of welfare cases. It is difficult for former welfare recipients without automobiles to get were the job openings are. The San Francisco Chronicle article by Louis Freedberg (1998) raises the questions of why African Americans and other minorities disproportionately live in central cities, why are they disproportionately poor, and does racism have something to do with both. The last popular press article in Part V, by Jamie Woodwell and Susan Rosenblum (1998), offers the more optimistic fact that according to a recent U.S. Census Bureau study, poverty is only a chronic condition for about five percent of the U.S. population. Chronic is defined as living below the poverty line for two or more consecutive years. Howbeit, the Woodwell and Rosenblum article also lays out other facts from the Census study that support the spatial mismatch hypothesis.
The review article by Mills and Lubuelle (1997) describes and interprets data and previous economic studies relating to the social and economic conditions found in the inner or central cities of U.S. metropolitan areas. This article does an excellent job of documenting the degree to which U.S. cities contain higher concentrations of racial and ethnic minorities, low-income people, and chronic social problems. Mills and Lubuelle specify, in a manner accessible to most with a basic economics background, how this spatial concentration came about and the interrelationships among it and how employment suburbanization is caused by and causes inner city problems. Their exposition on the Flight from Blight theory should not be missed.
For those interested in international comparisons, Mills and Lubuelle also compare the U.S. with 22 other O.E.C.D. countries regarding 13 social indicators like GDP per capita, life expectancy, pupil to teacher ratios, infant mortality, etc. As a whole, the U.S. does poorly in this comparison. But when only social indicators for Whites are compared to the totals for OECD countries, the U.S. ranking greatly improves. They conclude that inner city/suburban gaps in social indicators are large and have increased by most measures during the last 30 years.
The empirical piece chosen for Part V is an investigation of the knowledge that people in a metropolitan area have of the spatial distribution of jobs in the area. Keith Ihlanfeldt (1997) examines the results of a large survey conducted of Atlanta residents regarding the best areas within the region to look for a job. Individual responses are compared with what office mangers of employment agencies thought are the best places to look, and actual employment and job vacancy data from the Atlanta employment commission. Findings in the paper come from a comparison of descriptive statistics and a regression analysis. Ihlanfeldt concludes that the tendency of African Americans to reside in the central city of Atlanta (6.5 times greater than Whites) accounts for most of their disadvantage in not knowing the true availability of low skilled jobs among different regions in the metropolitan area. But regardless of race or labor force status, people looking for low skilled jobs possess poor information on where openings exist. This suggests that information dissemination could reduce the unemployment and poverty caused by the presence of spatial mismatch on some U.S. metropolitan areas.
Part VI: Urban Public Education
Part VI begins the second half of this volume and a focus on more specific topics. The first topic is public education in U.S. urban areas. It is included in this volume because the dissatisfaction that many express over public schools is usually not directed at the entire system of K-12 public education in the United States, but instead at the minority of public school districts that are performing below what is socially optimal. As described by the authors included in Part VI, a large majority of these low performing public schools are located at the urban core.
As Lawrence Picus (1996) points out in his summary, about one-fourth of the nation’s public elementary and secondary students attend the largest 100 districts in the United States. With some exceptions, these 100 districts encompass the 100 largest cities in the United States and can essentially be considered urban districts. No surprise after reading the Mills and Lubuelle (1997) summary of inner-city characteristics in Part V, these 100 districts serve large numbers of low-income families, racial and ethnic minorities, and students who speak limited English at home. Most, if not all, aggregate indicators of student performance are significantly lower in these urban districts and thus the desire to do something about it. Policy reforms ranging from more money, administrative accountability, charter schools, and vouchers have been suggested and tried. An economic perspective on all of this is contained in Part VI.
An editorial column by Arthur Levine (1998), President of Teachers College at Columbia University, is the popular press article I chose for this section. No matter the policy reform that one currently prefers for urban public schools, Levine’s opinion piece will stimulate thought. It is from a respected academic in the education establishment who has gone from opposing vouchers for public schools to supporting them for urban public schools. He suggests a national program of vouchers for those attending the bottom 10 percent of public schools in urban areas. Levine believes that this would offer low-income children a way out of poor-performing schools (something the non-poor already have), a chance for urban public school systems to shut down inferior school buildings and concentrate their limited resources on others, and encourage better public and private urban schools through competition.
The Picus (1996) article included in Part VI is an excellent summary of issues facing urban public schools and the policy reforms that have been suggested for them. His summary begins with a comparison of the characteristics of student characteristics, spending patterns, and revenue patterns in urban school districts to all U.S. school discuss. Picus next provides a review of policy reforms designed to help improve the performance of urban public schools. The reforms he sees as promising are working within the current public school system to improve site-based management and compensation reforms designed to reward newly hired and high-performing teachers. He sees less promise in just throwing more money at the problem, charter school establishment, school choice within the public system, and vouchers for private schools.
The issue of throwing money at the problem of poorly performing urban public schools is addressed in the empirical study on Why Is It So Hard to Help Central City Schools? In this article William Duncombe and John Yinger (1997) ask why existing school-aid formulas fail to provide the resources needed by central-city school districts to bring their educational outcomes up to an acceptable level. The answers they investigate are the failure of state aid programs to recognize the higher cost of providing comparable education services in central cities and that outside aid may actually reduce the efficiency of educational production in a large district. Duncombe and Yinger lay out a design for a new system of state aid that accounts for cost differences between urban and non-urban districts. However, using a data set from New York State, regression analysis, and well-crafted simulations, they show that feasible aid programs (i.e., ones that do not require new state or local revenue) do little to help central cities. By their calculations there are aid programs that would dramatically boost educational outcomes in urban schools. The lack of political support for such programs is what makes it truly difficult to help poorly performing urban schools.
Part VII: Urban Public Housing
Part VII deals with housing issues that are particularly prevalent in urban areas. These include the shortage of affordable rental units, mortgage finance related constraints on homeownership, housing assistance to the poor, and equal opportunity for housing finance. Economists have something to say about these issues because many are tied to private market failures and may call for public intervention. The economic examination of the nexus between government and shelter in urban areas is the subject of this chapter. The three authors included in Part VII explore the housing situation in U.S. urban areas and offer their assessment of government attempts to improve it. Particular attention is paid to recent changes in the Federal Housing Administration, the U.S. Department of Housing and Urban Development, and the system of public housing in the United States.
S.C Gwynne’s article, that appeared in Time magazine in 1998, is a popular description of one result of reforms adopted by the U.S. Department of Housing and Urban Development (HUD) during the 1990s. By the mid-1990s, public housing in New Orleans was some of the worst in the country. Since 10 percent of the city’s total population lives in such housing the issue raised serious concerns. In 1996 HUD turned the complete operation of the Housing Authority of New Orleans over to Tulane University. The relative success of this radical experiment is described in Gwynne’s article.
A portrait of Urban Housing Policy in the 1990s is contained in the review article written by Stuart Gabriel (1996). Gabriel’s article begins with an overview of recent changes in housing conditions and homeownership opportunities in the United States. Regarding homeownership opportunities he describes trends that have made the situation worse in many U.S. urban areas (house price run ups, decrease in homeownership rates for African Americans and Latinos, etc.) and offers his appraisal of policy efforts under way to try and reverse these trends. Citing the fact that one-fourth of the nation’s renters are low income and receive some form of government assistance, Gabriel goes on to describe the U.S. housing programs that are in place and the sad state of many of them. Reform efforts, such as the one described in Gwynne’s article, are described and evaluated. A short background on discrimination in housing and mortgage markets is also provided. Gabriel concludes that the budgetary and political environment surrounding housing policy in the United States has evolved immensely since 1994. The environment of the late 1990s seeks to diminish the role of the federal government and emphasize enhanced flexibility in funding and administrative responsibility at the local level.
Thomas Hungerford (1996) provides an informative examination of the duration of public housing assistance spells in the U.S. He argues that knowing the characteristics of people who receive public housing assistance for short periods of time has important policy implications for the long-term composition of public housing residents and for the targeting of scarce HUD funds to increase self-sufficiency. Using a hazard regression model and individual data from the Survey of Income and Program Participation, Hungerford finds that individuals who are more job ready, non-disabled, under age 65, and less tied to other welfare programs are more likely to live in public housing for a short period of time.
Part VIII: Urban Crime
The crime rate in U.S. central cities and urban areas has always been greater than in rural areas. This differential is often given as a reason why individuals and businesses leave central cities for suburban and rural locations. But in the second half of the 1990s there has been a dramatic drop in overall crime in the United States. Has crime fallen in central cities and urban areas in the 1990s to the extent that it has fallen throughout the country? If so, what types of urban crime have decreased the most? For the analysis of existing public policies in place and the development of new ones, it also consequential to understand the factors responsible for the lower crime rate. These issues, in one way or another, are accounted for in the four articles included in Part VIII.
As pointed out by David Anderson (1997) in the San Diego Union-Tribune, the exact cause of the drop in U.S. crime rates remains a mystery. Anderson offers evidence that stiffer penalties are now in place, but offers no convincing evidence that these are the primary cause of decreased crime. He points to New York City’s falling crime rate, and its effort at increasing the number of police officers and mounting an increased effort to prosecute quality of life crimes, as a cause-and-effect case study that may offer one explanation for declining crime in the U.S.
An article from the Christian Science Monitor, by Leon Lazaroff and Jim Blair (1998) also describes policy changes in New York City policing and the production of its lowest homicide rate in 30 years. Yet as Lazaroff and Blair point out, in 1997 the homicide rate in Los Angeles was also at a 20 year low and throughout the 1990s Chicago, New Orleans, Dallas, Baltimore, and San Francisco experienced continuos declines in their murder rates. Perhaps the fall in crime is due, in at least part, to all of the above reasons plus the 1990s’ continuing economic expansion, fewer young men between age 16 and 24, and waning crack epidemic. Applying a more academic approach, this is taken up in Part VIII by Ann Witte (1996) in her survey article on issues and policies relating to urban crime.
Witte provides a sweeping prospective of the social and criminal justice factors and public policies that are linked to urban crime. In doing so she offers the background necessary to better understand recent trends in urban crime and whether they will continue. Witte begins her review by inventorying policy issues that are related to urban crime. These include drugs, domestic violence, property values, and economic activity in urban ghettos. For each of these policy issues she provides a summary of current thinking on its interrelationship with urban crime. Next she reviews the local, state, and federal public policies that affect urban crime rate. On a sobering note, Witte concludes by pointing out that even though overall crime rates have fallen, and in some cases even central city crime rates have fallen, the rate of violent crime among young urban males continues to rise. To counter this disturbing trend she suggests specific policies for at-risk youth.
The final article in Section VIII is an admirable example of the approach that economists have used to isolate the causal factors responsible for differences in crime rates across jurisdictions. It is included here to offer a specific data based perspective on the possible causes of falling crime rates in the United States. Christopher Cornwell and William Trumbull (1994) use the standard economic model of criminal activity first proposed by Gary Becker, a data set drawn from North Carolina counties over time, and advanced panel data regression techniques to show that both labor market and criminal justice strategies exert significant influences on crime. Perhaps most important to the debate over the effectiveness of populist get-tough measures like Three-Strikes legislation, Cornwell and Trumbull provide empirical evidence that the influence of law enforcement incentives (such as arrest and conviction probabilities) on jurisdictional crime rates have been greatly exaggerated.
Part IX: Urban Transportation
Stuck in traffic. Probably one of the least pleasant circumstances that someone experiences in an urban area. Unfortunately for those who reside in major metropolitan areas its occurrence seems on the rise. Actual and suggested policies to ease metropolitan traffic congestion and an examination of the link between traffic congestion and labor productivity/output in a region are the issues covered in Part IX. The chapter opens with a popular explanation of how economists think about traffic congestion and how motorists have a habit of counteracting their best-laid plans to reduce it. Next comes a more academic review of the approaches suggested by economists to reduce urban traffic congestion, and a second academic review of the social benefits of government subsidies to urban transit. Finally there is a regression-based analysis of the effect of street and highway congestion on labor productivity and output.
The 1998 magazine article from The Economist, selected for Part IX, opens with the problem of whether to build another bridge to relieve congestion on one currently bringing people into a city. Would a new bridge serve that purpose or will it just the pave the way for more traffic? The article first addresses this issue through an accessible explanation of the microeconomic concept of a negative externality and estimates of the social costs of traffic congestion. The author concedes that traffic congestion represents a market failure but questionably concludes that "…this failure is mostly of fairly minor economic importance." Getting back to question of another bridge, The Economist article correctly points out that building it may just attract drivers who previously took other routes or never came into the city. Even after bridge or highway construction, metropolitan traffic congestion may remain unaltered.
Kenneth Small (1993) next offers his highly informed opinion on new approaches to untying the Gordian Knot of urban traffic congestion. Like The Economist article, Small also eschews increased capacity as the solution to congestion. Latent demand is sure to appear as soon as additional road space is added. Like most economists, the policy prescription he advocates is the use of fees to allocate scarce highway capacity or congestion pricing. For it to work he believes the fees structure must vary widely by day and peak-load fees must be high enough to seriously reduce single occupancy auto travel during peak times. The use of such fees would provide revenue for needed infrastructure and are easily collected using the high-tech toll mechanisms available today. The biggest obstacle to putting these fees in place is people’s resistance to pay for something that has been viewed as a free good. Small suggests that this resistance be broken down by offering legislators or voters a specific plan that calls for fee revenue to be equally distributed: (1) to frequent user of affected transportation system, (2) to reduce other existing transportation taxes, and (3) to expand and improve transportation services for all.
On a slightly different but related note, Janet Rothenburg Pack (1992) offers a cautionary tale regarding how to think about the benefits of government subsidies to local transit systems. Pack begins with the fact that for every dollar that U.S. transit riders pay in fares, taxpayers throughout the United States match with two dollars of subsidy. Is there is any justification for this high rate of subsidy? The answer she provides is that it is "worth every penny." Pack supports this conclusion by showing that not just transit riders, but society as a whole benefits from the existence of publicly provided transportation. The social benefits she calls attention to are reduced road congestion and accidents, reduced noise and air pollution, reduced congestion on alternate transit facilities, and the increased welfare of transit riders. All but the last benefit is distributed to all of society. For Philadelphia’s commuter rail system in the 1980s, Pack puts a dollar value on these benefits and show that in total they are greater than the subsidy provided. In conclusion she suggests that to fund their service, transit authorities capture some of these benefits by taxing the local property value enhancement that occurs because of it.
Marlon Boarnet (1997) wrote the empirical article on urban transportation that is included in Part IX. Boarnet tries to tie increased highway congestion in California counties, holding all else constant, to a decrease in labor productivity and output in these counties. Regression techniques are used that allows a comparison between the labor benefits of an increased stock of highways in a county, verses reducing traffic congestion on existing highways. Using the appropriate statistical methods, Boarnet shows that a public policy of reducing traffic congestion through peak-load pricing would offer a greater bang-for-the-buck to labor than a policy of simple highway expansion.
Part X: Local Government
Part X concludes this volume of readings in applied and policy related urban economics with a examination of local government in urban areas. Beginning with the work of Charles Tiebout in 1956, economists have looked to a system of local governments in a metropolitan area as a way of introducing competition, and the benefits derived from it, into the public provision of local goods and services. Albeit, economists have also recognized that a system of independently operating local governments in a metropolitan area generates significant geographical spillovers and equity concerns. The study of local public finance is the attempt to consider all of these issues in a simultaneous fashion. Therefore, a reader on urban economics that focuses on applied and policy related issues would not be complete with a section on local government.
Part X opens with a viewpoint newspaper column from Buffalo suburban dweller Debra Meyers (1997). Though not as formal as the theorizing of economists, Meyers does a admirable job of describing the reason as to why over three-quarters of U.S. metropolitan dwellers choose to live in the burbs over the central city. Suburban living is preferred based on safety, schools, a sense of community, convenience, and local government that "..seems to be more representative and accountable to its citizenry." As with much covered in this chapter, this column could just as appropriately been placed in Part III: Location, Land Use, and Urban Sprawl.
In his review article on metropolitan fiscal disparities, Roy Bahl (1994) chooses instead to emphasize the geographical spillovers and equity concerns that arise from a system of fragmented local government in a metropolitan area. Bahl reinforces the point, given earlier in Part V: Race, Employment, and Poverty in Urban Areas, that median income is lower in U.S. central cities than suburban areas and social problems are greater. In general, central city government and infrastructure are also more impoverished than their suburban counterparts. Writing in the early 1990s, he maintains that these conditions have not gotten any better over the last 20 years. The extension that Bahl offers is that there is a connection between the problem of fiscal disparities and the suburbanization of metropolitan areas.
In the first half of his article, Bahl defines what he means by fiscal stress and shows that city-suburb fiscal disparities have existed for over 30 years in the United States. He documents that the early 1990s saw little reversal in this trend. In the second half of the article, he offers his informed opinion on the policy role federal aid and state assistance can and should play in reducing these disparities. Bahl broaches the issues of metropolitan government and regional tax base sharing, but for reasons he provides, does not believe that they are likely to be adopted on a large scale in the United States and thus not viable policy options. In the end he believes that the states are the ones who can be expected to equalize revenue disparities within metropolitan areas, if it is done at all.
Ronald Fisher and I (1998) co-authored the empirical piece on local government in metropolitan areas that concludes this chapter and the article portion of this volume. Though Tiebout’s model of local government formation in an urban area, and the competitive benefits to be derived from it, is broadly accepted by economists and cited widely in applied and policy related analysis, there has been little formal testing of its major tenant. The major tenant being that the greater the inter-metropolitan variation in citizen demand for the services provided by local governments, holding all else constant, the greater should be the number of governments in a metropolitan area. We set out to test this theory through a 1982 data set containing observations on the number of municipalities and school districts, and relevant explanatory variables from the 165 largest metropolitan areas in the country. Through multiple regression analysis we find statistical evidence that greater variation in income and education in a metropolitan area yields a larger number of municipal and school governments.
Conclusion
This concludes the editor’s introduction to this volume. The articles just described, additional readings, and discussion questions based upon the included articles follow. In the process of assembling this collection I learned a lot about applied and policy related urban economics. My hope is that you can say the same after reading the volume.