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Private Investment, Public Aid and Endogenous Divergence in the Evolution of Urban Neighborhoods

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  • Lanny Arvan

    ()

  • David Nickerson

    ()

Abstract

This paper offers a novel explanation for urban blight and endogenous divergence in the overall quality and wealth of neighborhoods and simultaneously derives the salient features of actual urban renewal and other aid programs from optimizing government behavior based on collective public preferences. These features appear when the objective of such public aid programs is to restore the ex ante distribution of wealth or property values within a blighted neighborhood, while equilibria exhibiting deficient levels of private investment and blight itself can arise when residents accurately anticipate the potential provision of public aid to an affected neighborhood and ex ante investment in private insurance diminishes neighborhood eligibility for such aid. Examples of antipodal equilibria in which urban renewal programs entirely crowd out local private investment or in which neighborhood residents invest in efficient levels of private mitigation illustrate these results, which stand in direct contrast to both traditional explanations of urban blight and to the new “social-interaction” models of neighborhood divergence. Copyright Springer Science + Business Media, Inc. 2006

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File URL: http://hdl.handle.net/10.1007/s11146-005-5179-7
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Bibliographic Info

Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

Volume (Year): 32 (2006)
Issue (Month): 1 (February)
Pages: 83-100

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Handle: RePEc:kap:jrefec:v:32:y:2006:i:1:p:83-100

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Web page: http://www.springerlink.com/link.asp?id=102945

Related research

Keywords: blight; housing; neighborhood effects; urban renewal;

References

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  1. Grieson, Ronald E. & White, James R., 1989. "The existence and capitalization of neighborhood externalities: A reassessment," Journal of Urban Economics, Elsevier, vol. 25(1), pages 68-76, January.
  2. Smith, Lawrence B & Rosen, Kenneth T & Fallis, George, 1988. "Recent Developments in Economic Models of Housing Markets," Journal of Economic Literature, American Economic Association, vol. 26(1), pages 29-64, March.
  3. Galster, George, 2002. "An economic efficiency analysis of deconcentrating poverty populations," Journal of Housing Economics, Elsevier, vol. 11(4), pages 303-329, December.
  4. Mitchell Polinsky, A. & Shavell, Steven, 1976. "Amenities and property values in a model of an urban area," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 119-129.
  5. Edward L. Glaeser & Jose A. Scheinkman, 2001. "Non-Market Interactions," Harvard Institute of Economic Research Working Papers 1914, Harvard - Institute of Economic Research.
  6. Giorgio Fagiolo, 2001. "Coordination, Local Interactions and Endogenous Neighborhood Formation," LEM Papers Series 2001/15, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  7. Matthew Haag & Roger Lagunoff, 2006. "Social Norms, Local Interaction, And Neighborhood Planning ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 265-296, 02.
  8. Hoff, Karla & Sen, Arijit, 2004. "Homeownership, community interactions, and segregation," Policy Research Working Paper Series 3316, The World Bank.
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  11. Syron, Richard F, 1973. "Administered Prices and the Market Reaction: The Case of Urban Core Property Insurance," Journal of Finance, American Finance Association, vol. 28(1), pages 147-56, March.
  12. Rothenberg, Jerome & Galster, George C. & Butler, Richard V. & Pitkin, John R., 1991. "The Maze of Urban Housing Markets," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226729510, June.
  13. Lewis, Tracy & Nickerson, David, 1989. "Self-insurance against natural disasters," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 209-223, May.
  14. Schall, Lawrence D, 1976. "Urban Renewal Policy and Economic Efficiency," American Economic Review, American Economic Association, vol. 66(4), pages 612-28, September.
  15. Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
  16. Frame, David E., 2001. "Insurance and Community Welfare," Journal of Urban Economics, Elsevier, vol. 49(2), pages 267-284, March.
  17. Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-87, May.
  18. H. Peyton Young, 1996. "The Economics of Convention," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 105-122, Spring.
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Citations

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Cited by:
  1. Grislain-Letrémy, Céline, 2013. "Natural Disasters: Exposure and Underinsurance," Economics Papers from University Paris Dauphine 123456789/13276, Paris Dauphine University.
  2. Paul A. Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, . "Uncertainty of Governmental Relief and the Crowding out of Insurance," Working Papers 2010-03, Faculty of Economics and Statistics, University of Innsbruck.
  3. Paul Raschky & Reimund Schwarze & Manijeh Schwindt & Ferdinand Zahn, 2013. "Uncertainty of Governmental Relief and the Crowding out of Flood Insurance," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 54(2), pages 179-200, February.
  4. C. Grislain-Letrémy, 2013. "Natural Disasters: Exposure and Underinsurance," Documents de Travail de la DESE - Working Papers of the DESE g2013-12, Institut National de la Statistique et des Etudes Economiques, DESE.
  5. Paul Raschky & Hannelore Weck-Hannemann, 2007. "Charity hazard - A real hazard to natural disaster insurance," Working Papers 2007-04, Faculty of Economics and Statistics, University of Innsbruck.
  6. Céline Grislain-Letremy, 2013. "Natural Disters : Exposure and Underinsurance," Working Papers 2013-15, Centre de Recherche en Economie et Statistique.

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