Misbehavioral urban economics

Applications of the framework of behavioral economics to questions arising from urban economics are discussed. Directions for future research are outlined.Behavioral urban economics; ambiguity aversion; loss aversion; regional art

Well Isn't That Spatial?! Handbook of Regional and Urban Economics: A View From Economic Theory

Review of the 'Handbook of Regional and Urban Economics: Volume 4: Cities and Geography' edited by J.V. Henderson and J.-F. Thisse

Misbehavioral urban economics

Applications of the framework of behavioral economics to questions arising from urban economics are discussed. Directions for future research are outlined.behavioral urban economics; ambiguity aversion; loss aversion; regional art

Repeated Commuting

We examine commuting in a game-theoretic setting with a continuum of commuters. Commuters' home and work locations can be heterogeneous. The exogenous transport network is arbitrary. Traffic speed is determined by link capacity and by local congestion at a time and place along a link, where local congestion at a time and place is endogenous. After formulating a static model, where consumers choose only routes to work, and a dynamic model, where they also choose departure times, we describe and examine existence of Nash equilibrium in both models and show that they differ, so the static model is not a steady state representation of the dynamic model. Then it is shown via the folk theorem that for sufficiently large discount factors the repeated dynamic model has as equilibrium any strategy that is achievable in the one shot game with choice of departure times, including the efficient ones. A similar result holds for the static model. Our results pose a challenge to congestion pricing. Finally, we examine evidence from St. Louis to determine what equilibrium strategies are actually played in the repeated commuting game.commuting; folk theorem

Central Place Theory

This is a short dictionary entry. Central place theory is a descriptive theory of market area in a spatial context. Its definition, history, and relation to modern microeconomic theory are provided.Market Area, City Hierarchy, Hexagonal Structure, Spatial General Equilibrium Theory, Transport Cost, Increasing Returns to Scale

Explaining the size distribution of cities: x-treme economies

We criticize the theories used to explain the size distribution of cities. They take an empirical fact and work backward to obtain assumptions on primitives. The induced theoretical assumptions on consumer behavior, particularly about their inability to insure against the city-level productivity shocks in the model, are untenable. With either self insurance or insurance markets, and either an arbitrarily small cost of moving or the assumption that consumers do not perfectly observe the shocks to firms' technologies, the agents will never move. Even without these frictions, our analysis yields another equilibrium with insurance where consumers never move. Thus, insurance is a substitute for movement. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move, generating a Fréchet distribution of city sizes that is empirically competitive with other models.Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory

Explaining the size distribution of cities: x-treme economies

We criticize the theories used to explain the size distribution of cities. They take an empirical fact and work backward to obtain assumptions on primitives. The induced theoretical assumptions on consumer behavior, particularly about their inability to insure against the city-level productivity shocks in the model, are untenable. With either self insurance or insurance markets, and either an arbitrarily small cost of moving or the assumption that consumers do not perfectly observe the shocks to firms' technologies, the agents will never move. Even without these frictions, our analysis yields another equilibrium with insurance where consumers never move. Thus, insurance is a substitute for movement. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move, generating a Fréchet distribution of city sizes that is empirically competitive with other models.Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory

Salience: Agenda Choices by Competing Candidates

Which issues are discussed by candidates in an election campaign? Why are some issues never discussed? Model tractability is lost quickly when dealing with these questions, partly because of the multidimensional voting inherent in models of multiple issues. Our model features two candidates for office who can talk about any subset of issues, allowing uncertainty both on the part of voters and candidates, and taking candidates to be office motivated. Candidates move first and simultaneously, announcing any positions they choose on any issues. To us, salience is simply the discussion of an issue in a campaign. If both candidates and voters are expected utility maximizers, we find salience results, in that candidates typically want to talk about everything (or they are indifferent between talking and nonsalience). Leaving the expected utility framework, we present an example using “Knightian uncertainty” or “maxmin expected utility with multiple priors” of Gilboa-Schmeidler to illustrate how robust nonsalience and salience of issues might be generated.Salience, Candidate Competition, Elections, Knightian Uncertainty, Non-Expected Utility Theory, Maxmin Expected Utility with Multiple Priors, Gilboa-Schmeidler, Ambiguity Aversion

When Worlds Collide: Different Comparative Static Predictions of Continuous and Discrete Agent Models with Land

This paper presents a difference in the comparative statics of general equilibrium models with land when there are finitely many agents, and when there is a continuum of agents. Restricting attention to quasi-linear and Cobb-Douglas utility, it is shown that with finitely many agents, an increase in the (marginal) commuting cost increases land rent per unit (that is, land rent averaged over the consumer's equilibrium parcel) paid by the consumer located at each fixed distance from the central business district. In contrast, with a continuum of agents, average land rent goes up for consumers at each fixed distance close to the central business district, is constant at some intermediate distance, and decreases for locations farther away. Therefore, there is a qualitative difference between the two types of models, and this difference is potentially testable.Large Urban Economies, Comparative Statics, Continuous and Discrete Agent Models

Labor differentiation and agglomeration in general equilibrium

The aim of this paper is to explore the structure of cities as a function of labor differentiation, gains to trade, a fixed cost for constructing the transportation network, a variable cost of commodity transport, and the commuting costs of consumers. Firms use different types of labor to produce different outputs. Locations of all agents are endogenous as are prices and quantities. This is among the first papers to apply smooth economy techniques to urban economics. Existence of equilibrium and its determinacy properties depend crucially on the relative numbers of outputs, types of labor and firms. More differentiated labor implies more equilibria. We provide tight lower bounds on labor differentiation for existence of equilibrium. If these sufficient conditions are satisfied, then generically there is a continuum of equilibria for given parameter values. Finally, an equilibrium allocation is not necessarily Pareto optimal in this model.city structure; heterogeneous labor; transportation network; general equilibrium