Jan K. Brueckner

Strategic Interaction Among Governments: An Overview of Empirical Studies

This article provides an overview of empirical models of strategic interaction among governments. To clarify the theoretical roots of such studies, the discussion shows how the empirical frameworks fit into two broad categories: spillover models and resource-flow models. Both types of models generate jurisdictional reaction functions, and the empirical task is to estimate such functions. When the estimated reaction-function slope is nonzero, the presence of strategic interaction is confirmed. The second part of the article reviews three econometric issues relevant to this estimation problem.

Urban Sprawl: Diagnosis and Remedies

This article argues that urban spatial expansion results mainly from three powerful forces: a growing population, rising incomes, and falling commuting costs. Urban growth occurring purely in response to these fundamental forces cannot be faulted as socially undesirable, but three market failures may distort their operation, upsetting the allocation of land between agricultural and urban uses and justifying criticism of urban sprawl. These are the failure to account for the benefits of open space, excessive commuting because of a failure to account for the social costs of congestion, and failure to make new development pay for the infrastructure costs it generates. Precise remedies for these market failures are two types of development taxes and congestion tolls levied on commuters. Each of these remedies leads to a reduction in the spatial size of the city.

Airport Congestion When Carriers Have Market Power

This paper analyzes airport congestion when carriers are nonatomistic, showing how the results of the road-pricing literature are modified when the economic agents causing congestion have market power. The analysis shows that when an airport is dominated by a monopolist, congestion is fully internalized, yielding no role for congestion pricing under monopoly conditions. Under a Cournot oligopoly, however, carriers are shown to internalize only the congestion they impose on themselves. A toll that captures the uninternalized portion of congestion may then improve the allocation of traffic. The analysis is supported by some rudimentary empirical evidence.

Welfare Reform and the Race to the Bottom: Theory and Evidence

Economists have argued that welfare migration leads to a race to the bottom in the choice of welfare benefits. Although a system of federal matching grants can remedy this problem, the recent welfare reform law replaced the existing matching-grant structure with block grants, a policy change that appears undesirable. To judge whether this critique of welfare reform is justified, this paper evaluates the evidence in favor of a race to the bottom. After explaining the theoretical effects of welfare migration, the paper surveys the empirical evidence on the occurrence of such migration, concluding that the evidence is mixed. The discussion also considers recent empirical tests for strategic interaction, which show that benefit levels in nearby states affect a given state’s benefit choice. The most plausible source of such interaction is a concern about welfare migration, which leads policymakers to look at benefits in neighboring states when making their own choices. Judging that the evidence appears consistent with the existence of a race to the bottom, the paper concludes that the demise of matching grants may be undesirable from a policy perspective.

The structure of urban equilibria: A unified treatment of the muth-mills model

A principal challenge facing the urban economist is the formulation of a rigorous economic explanation for a variety of observed regularities in the spatial structures of real-world cities. The most obvious among these is the dramatic spatial variation in the intensity of urban land-use. Buildings are tall near the centers of most cities, while suburban structures embody much lower ratios of capital to land. Providing a precise explanation of this pattern is an important goal of urban economic analysis. Among other obvious regularities requiring explanation is building height variation among (as opposed to within) cities. Buildings near the centers of large urban areas appear to be much taller than those near the centers of small cities, and a successful economic model must be able to isolate the causes of this observed difference. Urban economics has met the challenge of scientific explanation, with considerable success. The last twenty years have seen the emergence and refinement of a simple yet powerful model of urban spatial structure that successfully explains the principal regularities observed in the urban landscape, including those mentioned above. This model, which derives from the work of Alonso (1964), Mills (1967, 1972b), and Muth (1969), is built around the key observation that commuting cost differences within an urban area must be balanced by differences in the price of living space. This compensating price variation, which reconciles suburban residents to long and costly commuting trips, has far-reaching implications for the spatial structure of the city. While Alonso explored these implications in a framework where individuals consume land directly, Muth and Mills analysed a more realistic model where land is an intermediate input in the production of housing, which is the final consumption good. The purpose of the present chapter is to provide a unified treatment of the

Fare Determination in Airline Hub-and-Spoke Networks

This article provides the first evidence linking airfares to the structure of airline hub-and-spoke networks. The hypothesis tested is that any force that increases traffic volume on the spokes of a network will reduce fares in the markets it serves. This effect arises because of economies of density on the spokes. For example, since a large network (as measured by the number of city pairs that it connects) is expected to have low costs per passenger as a result of high traffic densities, fares in the individual markets served should be low, other things equal. Similarly, holding size fixed, a network that connects large cities should have higher traffic densities on its spokes (and thus lower fares in individual markets) than one serving small cities. Our empirical analysis supports these predictions. We find that network characteristics are important determinants of fares in 4-segment city-pair markets (these are markets requiring a connection at the hub). Furthermore, our empirical model predicts that the TWA-Ozark and Northwest-Republic mergers should have reduced fares in the 4-segment markets served by the hubs at St. Louis and Minneapolis.

The Price Effects of International Airline Alliances

This paper provides evidence on the effect of international airline alliances on fares. The main finding is that alliance partners charge interline fares that are approximately 25 percent below those charged by nonallied carriers. According to our theoretical model, the main source of this fare reduction is the internalization of a negative externality that arises from the uncoordinated choice of interline “sub‐fares” in the absence of an alliance. The paper also looks for evidence of an anti‐competitive alliance effect in the gateway‐to‐gateway markets. While the point estimates show that an alliance between two previously competitive carriers would raise fares by about 5 percent, this effect is not statistically significant.

The economics of international codesharing: an analysis of airline alliances

Abstract International airline alliances allow airlines to coordinate their operations in providing international service. This paper analyzes the effect of such alliances on traffic levels, fares, and welfare. In the model, the benefits of alliances arise because cooperative pricing of trips by the partners puts downward pressure on fares in the interline city-pair markets (these are markets where travel on both carriers is necessary). The loss of competition in the interhub market, which connects the hub cites of the partners, generates a countervailing effect, tending to raise the fare in that market. While the presence of economies of traffic density complicates these impacts by generating cost links across markets, simulation analysis shows that the above tendencies typically prevail. Welfare analysis shows that both consumer and total surplus typically rise following formation of an alliance despite the harm to interhub passengers, suggesting that the positive effects of alliances may outweigh any negative impacts.

Gentrification and Neighborhood Housing Cycles: Will America's Future Downtowns be Rich?

This paper identifies a new factor, the age of the housing stock, that affects where high- and low-income neighborhoods are located in U.S. cities. High-income households, driven by a high demand for housing services, tend to locate in areas of the city where the housing stock is relatively young. Because cities develop and redevelop from the center outward over time, the location of these neighborhoods varies over the citys history. The model predicts a suburban location for the rich in an initial period, when young dwellings are found only in the suburbs, while predicting eventual gentrification once central redevelopment creates a young downtown housing stock. Controlling for other determinants of where the poor live (e.g., proximity to amenities and public transit), empirical work indicates that if the influence of spatial variation in dwelling ages were eliminated, central-city/suburban disparities in neighborhood economic status would be reduced by up to 10 percentage points. Model estimates further predict that between 2000 and 2020, central-city/suburban differences in economic status will narrow in cities of all sizes, and especially in the larger metropolitan areas as American cities become more gentrified.

Competition and mergers in airline networks

Abstract This paper examines the effect of competition in airline hub-and-spoke networks. Because of the cost complementarities inherent to such networks, competition in a single market usually creates negative network externalities, causing a reduction in traffic throughout the network. Furthermore, competition may also imply a reduction in total social surplus. The paper suggests that antitrust policy towards airlines operating hub-and-spoke networks should be reconsidered.