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The Economic Approach to Cities

  • Glaeser, Edward L.

    (Harvard U)

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    The economic approach to cities relies on a spatial equilibrium for workers, employers and builders. The worker’s equilibrium implies that positive attributes in one location, like access to downtown or high wages, are offset by negative attributes, like high housing prices. The employer’s equilibrium requires that high wages be offset by a high level of productivity, perhaps due to easy access to customers or suppliers. The search for the sources of productivity differences that can justify high wages is the basis for the study of agglomeration economies which has been a significant branch of urban economics in the past 20 years. The builder’s equilibrium condition pushes us to understand the causes of supply differences across space that can explain why some places have abundant construction and low prices while others have little construction and high prices. Since the economic theory of cities emphasizes a search for exogenous causes of endogenous outcomes like local wages, housing prices and city growth, it is unsurprising that the economic empirics on cities have increasingly focused on the quest for exogenous sources of variation. The economic approach to urban policy emphasizes the need to focus on people, rather than places, as the ultimate objects of policy concern and the need for policy to anticipate the mobility of people and firms.

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    Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp08-003.

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    Date of creation: Jan 2008
    Date of revision:
    Handle: RePEc:ecl:harjfk:rwp08-003
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    1. Lawrence F. Katz & Jeffrey R. Kling & Jeffrey B. Liebman, 2000. "Moving to Opportunity in Boston: Early Results of a Randomized Mobility Experiment," NBER Working Papers 7973, National Bureau of Economic Research, Inc.
    2. LeRoy, Stephen F. & Sonstelie, Jon, 1983. "Paradise lost and regained: Transportation innovation, income, and residential location," Journal of Urban Economics, Elsevier, vol. 13(1), pages 67-89, January.
    3. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
    4. Edward Glaeser & Janet Kohlhase, 2003. "Cities, regions and the decline of transport costs," Economics of Governance, Springer, vol. 83(1), pages 197-228, October.
    5. Ellison, G. & Glaeser, E.L., 1994. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Working papers 94-27, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
    7. Katz, Lawrence & Rosen, Kenneth T, 1987. "The Interjurisdictional Effects of Growth Controls on Housing Prices," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 149-60, April.
    8. Caroline Minter Hoxby, 1994. "Does Competition Among Public Schools Benefit Students and Taxpayers?," NBER Working Papers 4979, National Bureau of Economic Research, Inc.
    9. Edward L. Glaeser & Bryce A. Ward, 2006. "The Causes and Consequences of Land Use Regulation: Evidence from Greater Boston," NBER Working Papers 12601, National Bureau of Economic Research, Inc.
    10. Beason, R. & Weinstein, D.E., 1993. "Growth, Economies of Scale, and Targeting in Japan (1955- 1990)," Harvard Institute of Economic Research Working Papers 1644, Harvard - Institute of Economic Research.
    11. Sandra E. Black, 1997. "Do better schools matter? Parental valuation of elementary education," Research Paper 9729, Federal Reserve Bank of New York.
    12. Gilles Duranton & Diego Puga, 2001. "Nursery Cities: Urban Diversity, Process Innovation, and the Life Cycle of Products," American Economic Review, American Economic Association, vol. 91(5), pages 1454-1477, December.
    13. Thomas J. Holmes, 1996. "The effects of state policies on the location of industry: evidence from state borders," Staff Report 205, Federal Reserve Bank of Minneapolis.
    14. Edward L. Glaeser & Matthew E. Kahn, 2001. "Decentralized Employment and the Transformation of the American City," NBER Working Papers 8117, National Bureau of Economic Research, Inc.
    15. Edward L. Glaeser & Jed Kolko & Albert Saiz, 2000. "Consumer City," Harvard Institute of Economic Research Working Papers 1901, Harvard - Institute of Economic Research.
    16. Gyourko, Joseph & Tracy, Joseph, 1991. "The Structure of Local Public Finance and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 774-806, August.
    17. Edward L. Glaeser & Matthew E. Kahn & Jordan Rappaport, 2000. "Why Do The Poor Live In Cities?," Harvard Institute of Economic Research Working Papers 1891, Harvard - Institute of Economic Research.
    18. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
    19. Joseph Gyourko & Albert Saiz, 2006. "Construction Costs And The Supply Of Housing Structure," Journal of Regional Science, Wiley Blackwell, vol. 46(4), pages 661-680.
    20. Edward L. Glaeser & Matthew E. Kahn, 1999. "From John Lindsay to Rudy Giuliani: the decline of the local safety net?," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 117-132.
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