class: center, middle, inverse, title-slide # Econ 330: Urban Economics ## Lecture 7 ### John Morehouse ### April 19th, 2021 --- class: inverse, center, middle # Lecture 6: Neighborhood Choice, P1 --- class: inverse, middle # Checklist .col-left[ 1) .hi.purple[Introduction to Amenities] 2) .hi.purple[Sorting for Public Goods] ] .col-right[ 3) .hi.purple[Neighborhood Sorting Model]: ] --- # Schedule This week: - Nothing due. Read ToTC chapter 5 & 6 Upcoming: - HW2: April 30th (Friday, not Sat) - Midterm: May 3rd -- more details next week --- # So Far We have a fairly simple model™️ of .pink[residential choice] (rental prices). What factor(s) in the model influences housing demand? -- - Bid-Rent curve for housing only includes commuting costs. -- .qa[Question]: Is this all you consider when deciding where to live? -- - What factors influence neighborhood decision choices? .hi.purple[Discuss] -- .hi.slate[A few examples] -- - Schools - Demographics - Crime Rate - Air Quality -- --- # Map 1 <img src="images/map1.png" width="80%" style="display: block; margin: auto;" /> Source: [Oppurtunity Atlas](https://www.opportunityatlas.org/) --- # Map 2 <img src="images/map2.png" width="80%" style="display: block; margin: auto;" /> Source: [Oppurtunity Atlas](https://www.opportunityatlas.org/) --- # Map 3 <img src="images/map3.png" width="80%" style="display: block; margin: auto;" /> Source: [Oppurtunity Atlas](https://www.opportunityatlas.org/) --- # Amenities __Defn__ An _amenity_ is a .hi[location-specific] .pink[consumption good] - These can vary across cities, within cities - Some shared by individuals, can be different for low and high income More examples -- - Beaches - Parks - Restaurants -- --- # Amenities Let's refine our language a bit. Two definitions: 1) .hi[Exogenous Amenities] are .hi[location-specific] consumption good that exist .pink[__are not__ influenced by where people decide to live] -- - .pink[Exogenous] means "deteremined outside of the model." Think about .pink[exogenous] variables as given. -- -- 2) .hi.purple[Endogenous Amenities] are .hi[location-specific] consumption goods that .purple[__are__ influenced by location decisions of individuals] -- - .purple[Endogenous] means "determined within the model." The model here is that of individual location choices -- -- --- # Examples .hi[Exogenous Amenities] - Weather -- - Proximity to Beaches and _federally_ protected natural areas (why not local?) - Proximity to Mountains -- -- .hi.purple[Endogenous Amenities] - School Quality and Quantity - Crime -- - Air Quality (probably both) - Parks -- -- To determine whether or not an amenity is .hi[exogenous] (.hi.purple[endogenous]), ask: "If I decide to live here, will this have an impact (even small) on the amenity of question?" -- - .hi[No: exogenous] _Beaches are there regardless of whether or not you live near the beach_ -- - .hi.purple[Yes: endogenous] _Crime is a function of the individuals in the area_ -- --- class: inverse, middle # Checklist .col-left[ 1) .hi[Introduction to Amenities] ✅ - Exogenous Amenities - Endogenous Amenities 2) .hi.purple[Sorting for Public Goods] ] .col-right[ 3) .hi.purple[Neighborhood Sorting Intro]: ] --- # Amenities as Public Goods Some amenities, like city parks, are _local public goods_. Does everyone care about these parks equally? -- Probably not -- .hi.slate[Example]: - Consider a 3 citizen city each with differing demands (Max WTP) for parks - Saurabh has low demand, Sam has medium demand, Jenny has high demand -- - Park Costs .hi[$60 per acre] to build -- - One way to fund: .hi.orange[share the burden] equally via a _per capita tax_ (each person pays 20 bucks p acre) -- -- --- # Some Math Let's be a bit more specific. Suppose the demand curves for each person are given by: -- - `\(\text{Saurabh}:\color{#6A5ACD} {P = 50 -2*\text{acres}}\)` - `\(\text{Sam}: \color{#e64173}{P = 40 -2*\text{acres}}\)` - `\(\text{Jenny}: \color{#34b3ff}{P = 30 - 2*\text{acres}}\)` -- -- .qa[Q]: Derive the number of acres of parks for each individual with a `\(\color{#009A00}{20}\)` dollar per person per acre tax --- # Amenities as Public Goods <img src="lecture_7_files/figure-html/inc_plot-1.svg" style="display: block; margin: auto;" /> --- # Amenities as Public Goods <img src="lecture_7_files/figure-html/demand2-1.svg" style="display: block; margin: auto;" /> --- # Amenities as Public Goods <img src="lecture_7_files/figure-html/demand3-1.svg" style="display: block; margin: auto;" /> --- # Flat Tax Tough decisions to make when deciding how much to build -- - Any thoughts on how to allocate the resource? - How much do we charge people? - How much do we build? -- .hi[Discuss] --- # Majority Rule and Median Voter One way to make the collective choice of how many acres of parks to build: .hi.orange[majority rule] - Have a series of .hi[binary elections] (.pink[multiple votes, each vote there is only one option]) - This election will always result in the winning option being the median voter (Sam) -- What is the issue with this theory/model of park dev? -- - We see variation in size of parks built .hi.purple[IRL] -- - How do we rectify this? -- --- # A twist Now suppose there is a city with .hi[3 identical districts], each with 3 citizens (Saurabh, Sam, Jenny)'s -- - Each district votes on its own park - Each citizen knows the preferences for parks of other citizens -- -- _Key Assumption_: .hi[Citizens pick which district to live]. What is the implication? -- -- - Similar types sort into the same neighborhood -- - Ie, Saurabh, and other low demand types recognize that if they move into the same district they have the highest chance of getting the level of parks they desire --- # A twist So, we have 3 neighborhoods with _homogenous types_. What does this do? -- <center> <font size="12"> Accomodate Diversity in Demand </font> </center> -- - In this perfect world, everybody gets what they want. Is reality this simple? -- <center> <font size="12"> Nope </font> </center> -- --- # Reality ## Real Cities - Usually, tax property - not a flax per capita tax -- - Variation in property value also causes municipal formation (ie, .hi.orange[people sort on income], _.orange[not just preference for public goods]_) -- -- ## Real People - Care about a diverse set of things (not just parks). These usually don't overlap perfectly -- - Also: people do not know .hi[full set of preferences] of others -- - __Reality__: Not everyone gets what they want! ☹️ -- --- class: inverse, middle # Checklist .col-left[ 1) .hi[Introduction to Amenities] ✅ - Exogenous Amenities - Endogenous Amenities 2) .hi.purple[Sorting for Public Goods] - Demand for public goods - Simple model with public goods and taxes ] .col-right[ 3) .hi.purple[Neighborhood Choice Intro]: ] --- # Neighborhood Sorting I will motivate this with a .qa[question]: -- - Do you _fully_ internalize the costs and benefits of where you decide to live? - Put differently: Is your choice of a neighborhood free from externalities? -- .qa[Short Answer]: Nope. These externalities are different for adults and children --- # Neighborhood Sorting .hi[Externalities] for kids: - Good/bad role models as adults - Classmates in school: focused vs disruptive -- .hi[Externalities] for adults: - Postive: job information, property valuation - Negative: property values -- In general: positive externalities increase with income and education level. Why? --- # Neighborhood Sorting These externalities give rise to the following questions: 1. Who gets desirable neighbors? -- 2. Will there be segregated or integrated neighborhoods? -- 3. Will there be sorting or mixing with respect to income, age, race, or some combination of those factors? - Is this sorting _de jure_, _de facto_, or both? More on this next time -- 4. What are the implications for the price of land in various neighborhoods? -- --- class: inverse, middle # Checklist .col-left[ 1) .hi[Introduction to Amenities] ✅ - Exogenous Amenities - Endogenous Amenities 2) .hi[Sorting for Public Goods] ✅ ] .col-right[ 3) .hi[Neighborhood Sorting Intro]: ✅ ] --- <!-- --- --> <!-- exclude: true --> <!-- ```{R, generate pdfs, include = F} --> <!-- system("decktape remark 02_goodsmarket_part1.html 02_goodsmarket_part1.pdf --chrome-arg=--allow-file-access-from-files") --> <!-- ``` -->