Anthony M. Yezer

Bias in estimates of discrimination and default in mortgage lending: the effects of simultaneity and self-selection

The common practices of estimating single-equation models of mortgage rejection to test for discrimination in mortgage markets or single-equation ex ante mortgage default equations to validate underwriting criteria produce biased and inconsistent parameter estimates. This is due to problems of simultaneous equations bias which arise because, in a world of imperfect information, mortgage terms are not exogenous to the rejection or default decision. In addition, mortgage default estimates are also subject to selection bias. Monte Carlo experiments are used to study the nature and extent of likely bias in single-equation estimation results. We find that rejection equation estimates indicate discrimination when none exists and that estimated coefficients of mortgage terms, such as the loan-to-value ratio, are also subject to significant bias in both rejection and default equations.

Energy footprint of the city: Effects of urban land use and transportation policies

Urban land use and transportation policies have dramatic effects on the density and spatial distribution of residences in large cities. Effects of these policies have been analyzed using numerical urban simulation models. At the same time, the US Energy Information Administration’s Residential Energy Consumption Survey has allowed researchers to investigate the relation between household energy consumption and characteristics of housing units.

An Indirect Test of Efficient City Sizes

Abstract This paper develops a model which demonstrates necessary conditions for efficient distribution of labor across areas given the presence of agglomeration economies and congestion externalities. An indirect empirical test for efficient allocation is formulated based on a comparison of estimated agglomeration economies with the compensating variation in occupation-specific wages needed to attract workers to larger cities. The results of this test suggest that there are specific city size ranges where necessary conditions for efficient allocation of resources are not met, particularly for cities in the 1.5 to 2.5 million population range. Current claims that continued growth of the largest U. S. cities is inefficient are not confirmed by the empirical results.

Testing the Monocentric Urban Model: Evidence Based on Wasteful Commuting

Recent papers have questioned the ability of the monocentric urban model to account for urban development patterns. Most damaging are estimates of wasteful commuting that indicate actual commuting may be eight times as large as efficient commuting predicted by the strong form of the monocentric model. This study recomputes previous estimates of wasteful commuting in a monocentric city that relaxes the strong form assumption that all households are identical. The recomputed estimates indicate that actual commuting is only twice as large as efficient commuting, a result generally consistent with the monocentric model. Copyright American Real Estate and Urban Economics Association.

An Indirect Test for Differential Treatment of Borrowers in Mortgage Markets

The indirect test implemented in this paper is based on the economics of discrimination which hypothesizes that differential treatment of borrowers, on the basis of age, race, sex, or property location, at any stage of the mortgage transaction, including prescreening, results in segregation of those getting less favorable treatment. Borrowers who perceive that they are receiving less favorable treatment based on age, race, sex, or property location would be segregated into the FHA-in-sured sector. Estimates of an FHA participation equation show no evidence of such segregation by sex, race, or center city property location. Younger borrowers do appear to be differentially concentrated in the FHA programs. Copyright American Real Estate and Urban Economics Association.

A Review of Statistical Problems in the Measurement of Mortgage Market Discrimination and Credit Risk

This paper examines the fundamental assumptions within the statistical analysis of discrimination and credit risk and the impact these flawed models had on the mortgage market ranging from false findings of discrimination to incorrectly detecting the future rise of default rates. Serving as a valuable resource to identify the flaws that continue to be overlooked in todays analyses, the paper promotes the improvement of the measurement of mortgage market discrimination and credit risk for a more accurate assessment.

To the Water's Edge, and Beyond: Effects of Shore Protection Projects on Beach Development

The effects on real estate development of shore-protection efforts that lower erosion rates and storm hazards are both controversial and difficult to detect. A simple theoretical model indicates that shore protection is likely to “tilt” development from areas a few hundred feet inland toward beachfront property. A modified repeat-sale house price index is used to measure price appreciation rates to the water’s edge. We are able to formulate an extremely sensitive empirical test for a tilt in rates of house-price appreciation implied by a tilt in development. Surprisingly, we find no significant evidence that shore-protection efforts have produced additional beachfront development in the Florida counties studied. The method used in this article is quite general and could be used in a number of applications where an environmental effect impacts real estate differentially over space.

A model of teenage labor supply

Abstract This paper develops a model of teenage labor supply and school participation which stresses the teenagers use of time in a family context. The family is viewed as imposing constraints on the teenagers allocation of time. The teenager maximizes his utility subject to these constraints which differ with his age, sex, and family type. Simultaneous equation estimation is used with market level (SMSA) data on teenage labor supply. Overall, we find well-behaved labor supply equations for teenage age, sex, and family-type groups. Moreover, different groups react differently to variables representing family-imposed constraints.

Where will we put the garbage? Economic efficiency versus collective choice

Abstract We consider the problem of locating noxious facilities which process waste including costs of disposal, transportation, negative externalities, and pollution control. Using models from the facilities location literature, we explore the nature of efficient, cost minimizing, disposal patterns. These efficient solutions can then be compared with collective choice outcomes in which voters recognize the spatial distribution of benefits and costs of alternative disposal site location patterns. Overall, we find that majority rule voting solutions result in disposal at too few facilities, which are too large, spaced too far apart and use too little pollution control to limit negative externalities.

Why Does Skill Intensity Vary Across Cities? The Role of Housing Cost

Substantial attention has been given to the stylized fact that workforce education level tends to increase with city size. This paper demonstrates that the positive relation between city size and skill intensity is a spurious result due to the omission of housing cost, which increases with city size. The theory is straightforward. If the income elasticity of demand for a primary residence is less than unity, the ratio of skilled to unskilled worker wages falls as housing cost rises. This changing wage ratio induces a substitution effect in production across all industries causing the skill intensity of the labor force to rise. Empirical tests show that the apparent relation between skill intensity and city size disappears when housing cost is added to models. Furthermore, the estimated elasticity of skill intensity with respect to housing cost agrees remarkably well with the value calculated from calibration of a theoretical model. These results call into question models of urban population determination and development that assume either homogeneous population or homothetic preferences.The ratio of skilled (college graduate) to unskilled (non-college graduate) workers (the skill intensity ratio, SIR) varies substantially across cities and the variance in the SIR has increased significantly since 1970. Recent research finds that the ratio of skilled to unskilled worker earnings (the skilled wage ratio, SWR) also varies significantly. The “income elasticity hypothesis” (IEH) holds that if, as empirical evidence suggests, the income elasticity of demand for housing is significantly below unity, then the SWR should vary inversely with house prices. This implication of the IEH has been confirmed in empirical tests and leads to a further consequence of the IEH. If the SWR varies inversely with house prices, the SIR should vary directly as employers substitute more skilled workers when the SWR falls. This provides the opportunity for a new test of the IEH which is conducted here. The results strongly confirm, consistent with the IEH, that housing cost is an important determinant of variation in the SIR across cities.