Robert W. Helsley

MATCHING AND AGGLOMERATION ECONOMIES IN A SYSTEM OF CITIES

Abstract This paper examines resource allocation in a system of cities with heterogenous workers and firms and imperfect information. We derive an agglomeration economy in the labor market from a matching process between workers and firms, and show that it has the characteristics of a local public good. We illustrate two externalities associated with firm location, and show that they render free entry equilibria inefficient. We analyze the formation of equilibrium cities as a game, and argue that since profit maximizing land developers cannot control the number of firms directly, they cannot attain efficient city sizes.

The fundamentals of land prices and urban growth

Abstract In a very simple model in which capital is durable and landowners have perfect foresight, the price of urban land has four additive components: the value of agricultural land rent, the cost of conversion, the value of accessibility, and the value of expected future rent increases, a growth premium. In rapidly growing cities, the growth premium may easily account for half of the average price of land and may create a large gap between the price of land at the boundary (minus conversion cost) and the value of agricultural land rent.

The stochastic city

Abstract This paper analyzes a simple model of an urban area with growth and uncertainty. Household income, rents, and prices for land follow stochastic processes. Even though investors are risk neutral, uncertainty affects both land rents and land prices in equilibrium because the conversion of land from agricultural to urban use is irreversible. Growth, on the other hand, affects urban and agricultural land prices but not the level of rents. We show that uncertainty (i) delays the conversion of land from agricultural to urban use, (ii) imparts an option value to agricultural land, (iii) causes land at the boundary to sell for more than its opportunity cost in other uses, and (iv) reduces equilibrium city size.

Urban subcenter formation

Abstract This paper presents a series of dynamic models of urban subcenter formation. The models have three common ingredients: first, a planner allocates a growing population to one of two production locations; second, public capital (infrastructure) must be installed prior to development of a production site; third, there are external scale economies in production and diseconomies of scale in transportation. The models show how, in a growing city, subcenters arise from the tradeoff between external scale economies in production and diseconomies in transportation. The models also show how the development of subcenters is affected by (1) the fixed costs of public capital, (2) differences in production technologies, and (3) interactions between production locations.

Strategic growth controls

Abstract This paper considers the strategic adoption of policies to control urban growth in a closed system of communities. We show that welfare-decreasing growth controls may be enacted even by profit-maximizing developers. This is a strong result, since developers are more likely to have incentives that are consistent with efficiency than are voters. The advantage of controlling growth is that it exerts a negative externality on uncontrolled communities; a higher population leads to a lower utility level, which makes consumers willing to pay more to live in a controlled community. We also prove that more restrictive growth controls are imposed when the negative effect on uncontrolled communities is stronger. In other words, there is more exclusion when the social cost of exclusion is higher. Finally, we establish that growth controls that restrict population are not strategically equivalent to those that act on the price of development. In particular, population controls are strategic substitutes, while price controls are strategic complements.

Agglomeration economies and urban capital markets

Abstract This paper presents a model of urban capital markets in which credit is allocated among risky investment projects in cities of various sizes. Because capital assets are specialized and immobile, the default value of a project depends on the second best use of its assets, and this is expected to be more valuable in large cities. Thus, city size provides external collateral, a public input in urban capital markets. This suggests that one source of agglomeration economies is the relative stability of large urban areas. It also implies that large areas will undertake a more extensive range of projects.

Sprawl and Blight

The objective of this paper is to show how the same market failures that contribute to urban sprawl also contribute to urban blight. The paper develops a simple dynamic model in which new suburban and older central-city properties compete for mobile residents. The level of housing services generated by older properties depends on current maintenance or reinvestment expenditures. In this setting, market failures that reduce the cost of occupying suburban locations, thus leading to excessive suburban development, also depress central-city housing prices and undermine maintenance incentives, leading to deficient levels of central-city reinvestment. Corrective policies that shift population from the suburbs to the center result in higher levels of reinvestment in central-city housing, therefore reducing blight.

Social Networks and Interactions in Cities

We examine how interaction choices depend on the interplay of social and physical distance, and show that agents who are more central in the social network, or are located closer to the geographic center of interaction, choose higher levels of interactions in equilibrium. As a result, the level of interactivity in the economy as a whole will rise with the density of links in the social network and with the degree to which agents are clustered in physical space. When agents can choose geographic locations, there is a tendency for those who are more central in the social network to locate closer to the interaction center, leading to a form of endogenous geographic separation based on social distance. We also show that the market equilibrium is not optimal because of social externalities. We determine the value of the subsidy to interactions that could support the first-best allocation as an equilibrium. Finally, we interpret our model in terms of labor-market networks and show that the lack of good job contacts would be here a structural consequence of the social isolation of inner-city neighborhoods.

Exclusion and the theory of clubs

This paper examines the competitive provision of club goods with costly exclusion. The authors consider two exclusion regimes: fine and coarse. With fine exclusion, a provider can charge both a membership fee and a per use price. With coarse exclusion, a provider can charge a membership fee only. The authors show that competitive club good providers choose both the efficient exclusion regime, which depends on the costs of exclusion, and the associated efficient resource allocation. Thus, with costly exclusion, the competitive provision of club goods is constrained Pareto efficient.

A Game-Theoretic Analysis of Skyscrapers

Skyscrapers are urbanism in the extreme, but they have received surprisingly little direct attention in urban economics. The standard urban model emphasizes differentials in access across locations, which determine land price differentials and building heights. This explanation leaves out an important force that appears to have historically influenced skyscraper construction: an inherent value placed on being the tallest. In this paper, we present a game-theoretic model of skyscraper development that captures this additional force. The model predicts dissipative competition over the prize of being tallest, a prediction consistent with the historical record. The paper discusses the implications of this result for the nature and efficiency of urban development and for the operation of urban real estate markets.