Risk attitudes and informal employment in a developing economy

© 2012 Bennett et al.; licensee Springer. This is an Open Access article distributed under the terms of the Creative Commons Attribution License(http://creativecommons.org/licenses/by/2.0),which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.We model an urban labour market in a developing economy, incorporating workers’ risk attitudes. Trade-offs between risk aversion and ability determine worker allocation across formal and informal wage employment, and voluntary and involuntary self employment. Greater risk of informal wage non-payment can raise or lower informal wage employment, depending on the source of risk. Informal wage employment can be reduced by increasing detection efforts or by strengthening contract enforcement for informal wage payment. As the average ability of workers rises, informal wage employment first rises, then falls. Greater demand for formal production may lead to more involuntary self employment

Compensation for Commuting in Imperfect Urban Markets

We develop an urban equilibrium job search model with employed and unemployed individuals where residential mobility of the unemployed is restricted. We assume a standard mono-centric model (firms are located in one location), but allow for imperfect labour markets. In contrast to models with perfect labour markets, the model predicts that the employed are only partially compensated for commuting costs in the form of wages. As a result, rent gradients are less steep than predicted by standard urban theories that assume perfectly competitive labour markets. © 2007 the author(s). Journal compilation © 2007 RSAI

How Differences in Property Taxes within Cities Affect Urban Sprawl?

This article attempts a formal analysis of the connection between the differentiated property tax rates within urban areas and urban spatial pattern in U.S. cities. We first develop a duocentric-city model where the Central Business District (CBD) is located at the origin while the Suburban Business District (SBD) is at the other end of the city. We show that the ratio between the property tax in the suburbs and in the center has an ambiguous impact on the size of the city. We then test this model empirically to determine this sign by using a dataset of effective property tax rates we developed using GIS techniques for central cities and suburbs in 445 urbanized areas. The empirical analysis estimates the link between these two variables by controlling for variables such as population, income, agricultural rent, commuting cost, climate, crime, and employment structure. Results from the empirical analyses suggest that a lower property tax rate in the suburbs in comparison to the central city is associated with more expansive urban growth and greater level of decentralization of population and employment

Housing Policies in China: Issues and Options

This article consists in three parts. The first part deals with theory. We evaluate the pros and cons of government involvement in urban housing and of renting versus ownership. In the second part, we summarize the different housing policies that have been implemented in the United States, Europe, and Asia. We draw some conclusions. In particular, we show that there is a tradeoff between encouraging home ownership and social housing since countries that have favor the former have neglected the latter (like Japan, Spain, etc.). In the third part, we use the theory and the international policy parts to address housing policy issues in China. One of the main concerns in Chinese cities is the raise of poverty mainly by illegal migrants (who are Chinese rural residents) living in urban villages. We propose two steps to fight against poverty in Chinese cities. The first one is to require that the Chinese government recognizes these illegal migrants by helping them becoming legal. The second step is to encourage social housing that directly or indirectly subsidizes housing for the poor. In that case, to fight against poverty, one can either implement place-targeted policies (like the enterprise zone programs in the US and Europe and/or housing projects in the US, UK, or France) or people-targeted policies (like the MTO programs in the US). We also discuss other issues related to poverty. In particular, we suggest that the government could also try to keep migrants in rural areas by attracting firms there and/or introduce a microfinance system that helps them become entrepreneur

Entry and Exit Strategies in Migration Dynamics

This work is devoted to study the role of combined entry and exit strategies in the migration process. We develop a real option model in which the community of immigrants in the host country is described as a club and the immigrants benefits is a U-shaped function, depending on the dimension of the district. There exist two threshold levels: the first one triggers the migration choice, while the second triggers the return to the country of origin. The theoretical results show that the phenomenon of hysteresis is amplified by the existence of a community both in the entry case and in the exit case. Furthermore, the community can reduce the minimum wage level required to trigger both exit and entry: this fact could explain why in some cases we observe migration inflows with a low wage differential and also with underunemployment. We show also some possible further extensions of the model: in one case we introduce a possible way to select the entrants skills and in another case we show some theoretical implementations to include possible policy shocks in the migrants choice

Regional Unemployment and New Economic Geography

Regional labor markets are characterized by huge disparities. The literature on the wage curve argues that there exists a negative relationship between unemployment and wages. However, this literature cannot explain how disparities of these variables between regions endogenously arise. In contrast, the New Economic Geography analyzes how disparities of regional goods markets endogenously arise, but usually ignores unemployment. Therefore, this paper discusses regional unemployment disparities by introducing efficiency wages into the New Economic Geography. This model shows how disparities of regional goods and labor markets endogenously arise through the interplay of increasing returns to scale, transport costs and migration