Prejudice, exclusion, and compensating transfers: the economics of ethnic segregation

Prejudiced groups self-segregate and exclude others. This is observed in South African apartheid, in the exclusion of Eastern European or Muslim immigrants from Western Europe and in ghettos formed by immigrants in many countries. In the United States, minorities (mostly African Americans) are segregated in central cities and wealthier European Americans reside predominantly in the suburbs. A fully closed general equilibrium model of the last case is presented. The model treats land, labor and product markets. Most whites flee the inner city for white-dominated suburbs. This benefits blacks by lowering inner city rents relative to wages. When whites are weakly prejudiced, exclusion from the suburbs hurts whites as well as blacks. But when whites are strongly prejudiced, a lump sum endowment transfer from whites to blacks can split the gains-from-trade: whites can pay transfers to blacks in exchange for blacks accepting exclusion. The transfer needed to compensate blacks is large if blacks are strongly hurt by exclusion and small if they are only slightly hurt. How much transfers to US central cities and to the poor compensate American blacks for the effects of exclusion is an open question.     

Congestion, Land Use, and Job Dispersion: A General Equilibrium Model

In dispersed cities, congestion tolls would drive up central wages and rents and would induce centrally located producers to want to disperse closer to their workers and their customers, paying lower rents and realizing productivity gains from land to labor substitution. But the tolls would also induce residents to want to locate more centrally in order to economize on commuting and shopping travel. In a computable general equilibrium model, we find that the centralizing effect of tolls on residences dominates on the decentralizing effect of tolls on firms, causing the dispersed city to have more centralized job and population densities. Under stylized parameters, we find that efficiency gains from levying congestion tolls on work and shopping travel are 3.0% of average income. About 80% of such gains come from road planning and 20% from tolls.     

The combined equilibrium of travel networks and residential location markets

The combined ‘user’ equilibrium of travel networks and residential location markets is shown to exist and to be unique in the expected allocation of households to residential locations and to the routes and links of the network, in the vacancies and rents of residential locations and in the congested travel time and cost of each network link. The formulation combines a multinomial logit model of households' location and route choices derived from utility maximization, a binary logit model of house owners' offer decisions derived from profit maximization and the standard model of network congestion. A travel disutility measure (consistent with utility maximization) replaces the standard ‘generalized cost function’. The proof utilizes a non-linear programming formulation which reproduces the simultaneous equilibrium conditions of the behavioral formulation. The stability of the unique equilibrium position is briefly discussed, a computational algorithm is proposed and hints for generalized formulations are provided.     

Rent Control with Matching Economies: A Model of European Housing Market Regulation

Housing markets are thin, and consumer search for housing is costly, time consuming, and risky. Mismatches between tenants and dwellings are common in a laissez-faire market. There are scale economies in accumulating tenants and houses and then matching them up to improve welfare. In many European countries, some housing is rent controlled and rationed by public centralized matching. Waiting time, risk in rationing, and risk in matching are costs that arise from such regulation. We show that welfare improvements over laissez-faire occur if gains from centralized matching can offset the decrease in housing quality, the possible increase in waiting times, and the risks in rationing induced by rent controls. Under regulation, there is a welfare maximizing partition of the stock into free and controlled markets; and contrary to observed practice, it is often welfare improving to set controlled rents above (not below) laissez-faire, which increases the supply offered for centralized matching and the opportunity for a better match.     

Hedonic analysis of a housing market in disequilibrium

This paper tests the hypothesis that information about housing market activity and about specific dwellings becomes capitalized into single family dwelling prices through a disequilibrium adjustment process. A dynamic price adjustment model, which is an extension of the standard hedonic model widely used in the literature, is derived, specified, and tested with both micro and aggregated data from the city of Chicago and for the period 1972–1976. The results show that from 32 to 75% of the variance in dwelling prices, unexplained by the standard hedonic attributes under assumptions of equilibrium, is explained by market activity signals such as mortgage interest rates and neighborhood transaction rates of the preceding period. Dwellings about which there is less information, making comparison pricing difficult, are shown to command a price premium. The standard equilibrium hypothesis appears readily rejectable and better predictions are obtained from the disequilibrium specifications. Several directions for extending this line of research are discussed.     

Giving the consumer the choice: A methodology for Product Ecological Footprint calculation

As global consumption increases we are faced with a major threat; exceeding the Earth's capacity to create new resources and absorb waste. In the present study we develop a self-improving, market-driven process of ecological footprinting of products, proposed as a means to give consumers a real choice in actively monitoring and reducing their ecological impact. We conduct a small scale case study to illustrate first stage calculations. A wider market application of higher accuracy second or third stage calculations changes market information dynamics, as ecological information is internalized for consumers. Potential impacts on purchasing behavior, demand and eco-technological innovation are discussed.     

INFRASTRUCTURE INVESTMENT AND PRODUCTIVITY: The Case of Nigerian Manufacturing A Framework for Policy Study*

This paper reviews the Nigerian situation regarding the private provision of infrastructure services by manufacturers with a focus on electrical power generation. While private provision occurs also in water supply, intraurban freight and worker transport, telecommunications, and waste disposal, the degree of its occurence in electrical power generation, a relatively expensive manufacturing input, has the largest economic implications for the firms and the country. The policy framework developed in this paper, however, is applicable to these other subsectors. Manufacturing firms' private provision responses are identified, analyzed, and grouped into seven regimes, four of which are currently observed to occur, and three are precluded from occuring due to existing regulations. A model of public infrastructure supply that is pertinent for developing countries is proposed and discussed. Policy options which could improve the current situation are also examined and discussed. It is argued that the most promising options are likely to be those which encourage new modes of cooperative private provision among manufacturers, accompanied by deregulation, privatization, contestability, modern pricing, and selective maintenance in the public agencies.     

The Evolution of Competition Policy in Indonesia

This paper assesses the evolution of the new Indonesian competition law passed in 1999, and the creation of the Competition Commission. The first half of the paper traces the debate and process of deregulation and liberalization that preceded the introduction of the law. Whilst deregulation did lead to increased competition and efficiency, distortions to competition in the goods sector still persisted due to ad hoc and non transparent measures taken due to government interventions and vested interests. The services and infrastructure sectors were only partially liberalized. The second half of the paper evaluates the debate on competition law and assesses its introduction and implementation. In the brief period of implementation to date, the tension between a pro-competition and an anti-bigness interpretation of the Law is evident. The paper concludes that ambiguities in the law should be eliminated, that the competition agency focuses on advocacy and introducing transparent procedures rather than hastening towards concluding investigations, and that competition issues faced by independent regulatory agencies in the services and infrastructure sectors should be introduced carefully.     

Dynamics of urban residential growth

This paper develops a dynamic model of the urban residential market. Under specific assumptions about market behavior on both the supply and the demand sides it is shown that cities grow by attaining a sequence of short run equilibria. A set of recursive equations is derived and through these the impact of growth on the structure of rents, densities, and consumer welfare is analyzed. The dynamic model explains the decay of the central locations in large old American cities. Housing obsolescence and abandonment arises under special conditions and is reflected in positively sloped rent gradients in central locations. The well-known static result of declining densities with distance from the center is shown to occur only under special conditions such as rising income levels. Directions for further analyzing urban growth, by expanding this dynamic approach, are pointed out.