Nonoptimal levels of suburbanization
Suburbanization has many causes, among which is the attempt to relocate to acquire a more desirable vector of local public goods. The traditional economists' procedure for valuing public goods involves vertical aggregation of marginal willingness to pay, at a given income level. This approach is flawed by failing to recognize that individuals will not work for goods that cannot be acquired individually with higher incomes. There will be a parallel input market failure any time there is a public good output market failure, thus the 'given income' of the traditional valuation method is too low. Hence, traditional valuation methods result in underprovision of local public goods (for example, parks, safety, education, and environmental quality) at the urban centers. As a consequence, there will be nonoptimally large levels of suburban sprawl with substantial resulting welfare loss.
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