Estimation of the Spatial Weights Matrix under Structural Constraints

While estimates of models with spatial interaction are very sensitive to the choice of spatial weights, considerable uncertainty surrounds de nition of spatial weights in most studies with cross-section dependence. We show that, in the spatial error model the spatial weights matrix is only partially identi ed, and is fully identifi ed under the structural constraint of symmetry. For the spatial error model, we propose a new methodology for estimation of spatial weights under the assumption of symmetric spatial weights, with extensions to other important spatial models. The methodology is applied to regional housing markets in the UK, providing an estimated spatial weights matrix that generates several new hypotheses about the economic and socio-cultural drivers of spatial di¤usion in housing demand

The General Interregional Price Model

In the input-output tradition regional and interregional spill-over and feedback effects are related to changes in the real economic activities. However, the effects of changes in costs and prices on real economic activity have usually been neglected, despite the fact that the redistributive effects from this dual element in the intra- and interregional economy might be considerable and have effects on economic activity, which are comparable with the quantity effects. CGE-models on the other hand have explicitly addressed this issue using non-linear functions to overcome theoretical problems related to the use of fixed coeffients, permitting for example a more satisfactory treatment of substitution between factors of production or commodities as well as the effects of changing costs on patterns of trade and other forms of interaction. Following the input-output tradition, a structural model for the formation of prices in a local economy involving the price determination through local economic interaction such as commuting and shopping an interregional interaction, such as trade the general interregional price model is derived. The equations of the general interregional price model are presented together with the solution of the model. The theoretical changes examined include a set of new geographical concepts and in the context of an interregional SAM the development of the two-by-two-by-two approach, involving two sets of actors (production units and institutional units), two types of markets (commodities and factors) and two locations (origin and destination). Finally, a simultaneous solution to the combined general interregional quantity and price model based upon the most simple link is outlined.

Modelling the regional economic impacts of road pricing in an interregional general equilibrium framework

In Denmark in recent years there has been a substantial debate both popular and academic concerning the consequences of introducing road pricing - both the regional consequences and whether road pricing gives a double dividend by reducing environmental externalities and by financing a tax reform where the incentive to work is increased through reduction in income tax rates. In this paper, the discussion on road pricing in Denmark is summarised: In the last 10 years, tax reforms have moved the tax burden to environmental taxation and away from income taxation. The argument has been the "double dividend", where environmental tax reforms both induce environmental improvements and provide welfare gains from a reduction in income tax rates increasing labour supply and production. Lately, the existence of a double dividend has been questioned and it has been argued that only environmental reforms reducing the relative welfare from leisure time activities and increasing the benefits from working will give a double dividend. Next the distributional problems from road pricing are discussed. The point of departure is different road pricing schemes, which have been proposed in Denmark and the discussion of double dividend, where road pricing can be used to change the relative prices between working and leisure time activities. Finally, an applied interregional general equilibrium model for Danish municipalities, LINE is presented. The first results from the calculation with the model are presented and methods to model the double dividend are presented.

Modelling Transport in an Interregional General Equilibrium Model with Externalities

In this working paper the regional impacts of road pricing on cars are analysed taking into account externality effects from transportation on wages and productivity. In the paper the direct impacts from changes in transport costs on level of wages and productivity (=direct externality effects) have been estimated. The direct and derived impacts of road pricing have been analysed with AKF’s local economic model LINE and include the impacts on regional production, income and employment. LINE is an interregional general equilibrium model, which uses an interregional social accounting matrix (SAM-K) and a regional transport satellite account as the basis for modelling. Additionally, data from a GIS-system (Technical University of Copenhagen) on transport costs have been included to estimate the demand for transport commodities and increase in transport demand and costs due to road pricing. The direct effects on level of wages and productivity have been included into the model together with all the direct effects on commodity prices from road pricing. In the working paper the total impacts of road pricing have been subdivided into 2 components: 1) The wage effects of reducing income net of commuting of increasing transport cost by introduction of road pricing, 2) the labour contraction effect from increasing wages through increase in commuting cost and 3) the negative productivity effects of introducing road pricing. In total the impacts of road pricing are substantial. Regions with high level of average commuting cost (suburban areas in Greater Copenhagen) suffers most, whereas the centre of Copenhagen suffers least because of short commuting distances. In rural areas impacts are on or just below average because low level of road pricing.