The Substitution Theorem in Urban Consumer Theory

This paper presents two nonparametric approaches to urban household location theory. For each model two sets of own price substitution theorems are presented, one for goods whose prices vary spatially and one for goods whose prices do not vary spatially in the market area. The usual substitution theorem derived in nonspatial demand theory is seen to hold for goods whose prices do not vary spatially. Goods whose prices vary spatially, however, reveal a significant departure from standard demand theory in that the substitution theorem is shown to hold unambiguously only for "parallel" shifts in spatial price surfaces. Further, the results are robust, extending to consumers in nonmonocentric urban areas, regardless of consumer tastes for travel distance or labor/leisure choice complications.     

Behavior‐ and characteristic‐based price discrimination

We develop a model of behavior‐ and characteristic‐based discriminatory pricing where consumers are heterogeneous both in tastes and in price sensitivity. Each firm is able to distinguish between the consumers that have bought from it and those that have bought from the rival. Furthermore, each firm learns the price sensitivity of their own consumers. We show that using this additional information may yield higher profits than uniform pricing provided that consumers are heterogeneous enough with respect to price sensitivity. We also discuss consumer surplus implications of such behavior‐ and characteristic‐based price discrimination, and we show that the impact of price discrimination depends on both the consumer type and the level of consumers’ heterogeneity.     

Mixture models of choice under risk

This paper is concerned with estimating preference functionals for choice under risk from the choice behaviour of individuals. We note that there is heterogeneity in behaviour between individuals and within individuals. By ‘heterogeneity between individuals’ we mean that people are different, in terms of both their preference functionals and their parameters for these functionals. By ‘heterogeneity within individuals’ we mean that the behaviour may be different even by the same individual for the same choice problem. We propose methods of taking into account all forms of heterogeneity, concentrating particularly on using a Mixture Model to capture the heterogeneity of preference functionals.     

The minimum circuity frontier and the journey to work

People travel between places of residence and work destinations via transportation networks. The relation between selection of home and work locations has been heavily debated in the transportation planning literature. In this paper we use circuity, the ratio of network to Euclidean distance, to better understand the choice of residential location relative to work. This is done using two methods of defining origins and destinations in twenty metropolitan regions in the United States, with more detailed analysis of Minneapolis–St. Paul, Minnesota and Portland, Oregon. The first method of selection is based on actual choice of residence and work locations. The second is based on a randomly selected dataset of origins and destinations in the same regions, followed by a comparison between the two methods for these regions. The study shows circuity measured through randomly selected origins and destinations differs from circuity measured from actual origins and destinations. Workers tend to reside in areas such that the journey to work circuity is lower than random, applying intelligence to their location decisions. Consistent with traditional urban economic theory, this suggests locators wish to locate on the frontier with the largest residential lot at the shortest commute time, but in contrast with the classic model which simplifies transportation networks to be uniform, we cannot assume that all possible home–work pairs are on the frontier. This finding, developed from microscopic data not previously used for this question, reveals an important issue related to residence choice and location theory and how resident workers tend to locate with respect to network configuration in an urban context.     

Asymptotic stability of a general equilibrium under perfect and monopolistic competition

This study examines the asymptotic stability of a general equilibrium for an economy under perfect and monopolistic competition in which delays in a production process arise. Crucially, we find that the sufficient conditions for the stability of the equilibrium in each model differ markedly. For the stability of the equilibrium under perfect (monopolistic) competition, it is favorable that the slope of every demand curve is gradual (steep).     

The Nature of Urban Land

A bstract . Considerations about land interpose into almost every aspect of urban life. They may not be the only factor determining a city's well-being but appropriate land policies are necessary to bring about prosperity and equity. Contemporary accounts of the 'urban crisis' and of urban problems reveal the pervasiveness of land issues. Use of one urban land parcel has bearing on the usability of neighboring sites, which makes land a community resource. Urban land may be defined as land used or expected to be used for urban activities. Its attributes include location, space, property, clustering, heterogeneity and immobility and indestructibility. Neo-classical theorists, by stressing accessibility and ignoring externalities and other attributes of land, achieved only an unrealistic understanding of it. Most land economists are institutionalists , their theory encompassing long-validated concepts about the nature of land. The neo-Marxian approach has many points of congruence with the institutionalist one. Empirically investigated, urban land is found to be different from economic goods and hence its production, allocation and disposition must proceed at least like other public goods.     

Does risk sharing increase with risk aversion and risk when commitment is limited?

I consider a risk-sharing game with limited commitment, and study how the discount factor above which perfect risk sharing is self-enforcing in the long run depends on agents׳ risk aversion and the riskiness of their endowment. When agents face no aggregate risk, a mean-preserving spread may destroy the sustainability of perfect risk sharing if each agent׳s endowment may take more than three values. With aggregate risk the same can happen with only two possible endowment realizations. With respect to risk aversion the intuitive comparative statics result holds without aggregate risk, but it holds only under strong assumptions in the presence of aggregate risk. In simple settings with two endowment values I also show that the threshold discount factor co-moves with popular measures of risk sharing.     

Landlords, tenants and the public sector in a spatial equilibrium model of rent control

A spatial model is used to explore the effects of urban rent control. When landlords and tenants can alter economic and location decisions, policy effects in controlled and uncontrolled zones may differ from standard predictions. Tenants in both zones may benefit from the control, even after unfavorable landlord adjustments, but these gains are likely to come at the expense of landlords and the public sector. Efforts to restore profits and fiscal balance, without negating utility gains to renters, may fail unless control distortions can be adequately shifted to absentee landowners through lower site rents. Lump-sum renter subsidies may offer equivalent utility gains with less severe impacts on landlords and the public sector, but the supply elasticity of land again matters.     

Agglomeration and taste heterogeneity: Equilibria,stability, welfare and dynamics

The spatial concentration of economic activity is modeled as a tag-of-war between consumer taste heterogeneity for location and external production benefits from the agglomeration of firms at the same location. The existence, number, stability and welfare of general equilibria are fully examined for a simple system of two regions which are identical a priori. When agglomeration effects are negligible at small sizes, the two locations grow equally until a critical bifurcation results in the accelerated growth of one location which ultimately attracts all activity. The supercritical bifurcation characterizes the case of agglomeration effects which are initially strong but become fully exhausted with size. In this case concentration occurs at the final phases of a decline process which exhibits a hysteresis effect relative to the opposite growth process. Both growth and decline involve middle cycles of non-equilibrium and stochastically sparked adjustment.     

The dynamics of innovation and horizontal differentiation

We study innovation in a dynamic stochastic discrete-time duopoly with endogenous horizontal differentiation. Innovation takes the form of a quality ladder; horizontal differentiation is Hotelling competition. We compute Markov-perfect equilibria and study the effects on long-run innovation of changes in taste heterogeneity (transport costs) and firms' costs of relocating products. Innovation rises as the industry's long-run position moves toward products that are permanently co-located in the space of horizontal tastes. A large enough fall in taste heterogeneity will raise long-run innovation, while more costly product relocation lowers innovation if taste heterogeneity is high, and raises it otherwise.     

Behavioral mechanism design: evidence from the modified first-price auctions

This paper tests the behavioral equivalence of a class of strategically-equivalent mechanisms that also do not differ in terms of their procedures. In a private value setting, we introduce a family of mechanisms, so-called Mechanism (α), that generalizes the standard first-price sealed-bid auction. In Mechanism (α), buyers are asked to submit a value which will then be multiplied by α to calculate the bids in the auction. When α =?1, Mechanism (α) is the standard first-price sealed-bid auction. We show that for any α, calculated bids should be identical across mechanisms. We conduct a laboratory experiment to test the behavioral equivalence of this class of mechanisms under different values of α. Even though the procedure and environment do not change across auctions, we do not observe the same bidding behavior across these strategically-equivalent mechanisms. Our research can inform mechanism design literature with respect to the design of optimal mechanisms.     

Social distance,heterogeneity and social interactions

A crucial ingredient in social interaction models is the structure of peer groups, which link individuals with similar characteristics. We propose and study a dynamic binary choice model with social interactions in which heterogeneity of peer group effects is modeled introducing diversity in individual characteristics and linking pairwise influences to a social distance between individuals. Our framework allows for mimetic as well as anti-mimetic interactions and a heterogeneous structure of peer groups across individuals. Dynamic equilibria are studied in the limit when the number of agents is large. We show that the model exhibits multiple equilibria resulting from conflicts between various group pressures the individuals are subjected to. We study in particular the correlation in the population at equilibrium between the characteristics of the agents and their decisions: this quantity has an interesting empirical interpretation and solves a simple analytical equation when the number of agents is large. Finally we discuss the empirical content of the model and present a consistent estimator for the parameter describing which is consistent for any typical population regardless of the structure of individual characteristics.     

The no-arbitrage condition and financial markets with heterogeneous information

This paper examines the role of the no-arbitrage condition in financial markets with heterogeneous expectations. We consider a single-period, state-contingent claims model, withM risky securities andS states. There exist two types of heterogeneously informed investors, where the information heterogeneity is defined with respect to either the security payoff matrix, the state probability vector, or state partitions. When the information heterogeneity is defined with respect to either the security payoff matrix or state partitions, the no-arbitrage condition imposes a constraint on the dispersion of information between informed and uninformed investors. Further, the no-arbitrage condition is useful in ascertaining the patterns of heterogeneity among investors that are consistent with equilibrium. However, when the information heterogeneity is defined with respect to state probabilities, the role of the no-arbitrage condition is severely restricted. Finally, the no-arbitrage condition may have important implications for the (necessary and sufficient) conditions for the existence of an equilibrium price vector in financial markets with heterogeneous expectations.     

Estimation and testing of Euler equation models with time-varying reduced-form coefficients

This paper studies the estimation and testing of Euler equation models in the framework of the classical two-step minimum-distance method. The time-varying reduced-form model in the first step reflects the adaptation of private agents’ beliefs to the changing economic environment. The presumed ability of Euler conditions to deliver stable parameters indexing tastes and technology is interpreted as a time-invariant second-step model. This paper shows that, complementary to and independent of one another, both standard specification test and stability test are required for the evaluation of an Euler equation. As an empirical application, a widely used investment Euler equation is submitted to examination. The empirical outcomes appear to suggest that the standard investment model has not been a success for aggregate investment.     

Location Decisions of Competing Networks

Early entrants in markets with network effects usually occupy a “central location” and serve agents with “intermediate tastes,” whereas later entrants are niche players. Why would the first entrant choose to become a “general” network, given that later entrants will not have enough room for differentiation, resulting in a more intense competition for market share? In a Hotelling model with two rival networks, we show that for intermediate values of the network externality parameter the location equilibrium is indeed asymmetric: the first entrant locates at the center whereas the second entrant chooses an extreme (niche) location.     

Data collection organization effect in the National Medical Care Utilization and Expenditure Survey.

The National Medical Care Utilization and Expenditure Survey (NMCUES), which has a complex survey design, was further complicated by combining two independently drawn national samples of households from the Research Triangle Institute (RTI) and the National Opinion Research Center (NORC). It is assumed that because the structures of both national area samples are similar, they are thereby compatible and allow for the derivation of unbiased national estimates of relevant health parameters. However, even though the two survey organizations operate under a common set of survey conditions with comparable samples, the actual data generated may differ across them, over and above differences due to pure sampling error. The NORC sample had a higher representation of individuals living in non-SMSA urban areas, of individuals with fair or poor health status, and of individuals incapable of performing usual activity. In addition, significantly higher mean estimates of the number of restricted activity days, of total charges for dental visits, for non-doctor visits and for hospital stays, and of overall total charges, characterized the NORC sample. The consistent directional difference in these health care estimates indicated a data collection organization effect was operational in the NMCUES. A comparison of item nonresponse rates, however, indicated the level of data quality on this dimension was generally equivalent across survey organizations. Further, the observed survey design differentials across organizations did not significantly differ in their impact on the precision in survey estimates. When a data collection organization effect is operational for a set of related survey statistics, as in the National Medical Care Utilization and Expenditure Survey, the use of more than one survey organization should be seriously considered.     

An empirical model of residential location and the journey-to-work in a metropolitan area

In this paper we present and estimate a single equation model designed to explain the residential location behaviour of individuals living in a multi-centered metropolitan area. We test the model for heads of households and non-heads of households separately, as well as for the total working population, in order to isolate differences in commuting behaviour between primary and secondary wage earners. The relationships are estimated from 1971 Census, cross-section data using least squares multiple regression. The data pertain to the Toronto Census Metropolitan Area (CMA) and sixty-three designated zones therein.The estimation results reveal that although location-rents prove to be significant in the individual's residential location decision-making process, their effect was limited to discouraging those employed in or near the central business district (CBD) from living close to work. The existence of secondary employment centres did not have the same significant effect in bidding up location-rents. Furthermore, contrary to the standard theory, the results suggest that residential location decisions are made in response to the availability of collective residential opportunities and workers' preferences for specific residential attributes rather than by reference to the “transportation cost—housing cost” trade-off. Among the socio-economic variables, age of the worker is found to be most significant in affecting journey-to-work distance. The results provide some evidence that non-heads are, to a certain extent, more sensitive to urban structural constraints in their commuting behaviour.     

A theoretical relationship between the rank-size rule and Clark's law of urban population distribution: Duality in the rank-size rule

This paper theoretically shows the necessary and sufficient conditions for the robust rank-size rule: the rank-size rule that robustly holds for any choice of threshold urban population density by which populations of cities are determined. First, it is shown that when urban population distribution follows Clark's law, the robust rank-size rule holds if and only if the gradient parameter of the negative exponential distribution of the ith ranked city as √i times as large as that of the first ranked city and the population density at the center is the same for all cities. Second, when urban population distribution follows a certain general class of urban population distribution functions, the robust rank-size rule (of population) holds if and only if the boundary condition is satisfied and the rank-size rule holds with respect to urban areas. These two rank-size rules, the rank-size rule of population and the rank-size rule of urban areas, form the primal-dual relation. Third, if the robust rank-size rule holds, then the constant density rule holds, that is, the average population density of a city over its urban area is the same for all cities.     

Urban ecology and residential location theories: Application in nigeria's socio-cultural milieu

Urban ecological studies are generally concerned with the spatial distribution of population characteristics, organisations, activities and behaviours across the urban terrain. These spatial distributions are taken to reflect the operation of socio-economic processes. Anglo-American urban ecological investigators had formulated much of the prevailing urban ecological theories of today. These theories were based on studies of their own socio-cultural and economic environments, which were by no means universal. This study, applies the principles of these well-known theories to a different socio-economic and cultural environment—Nigerian, with a view to testing their cross-cultural validity. This is done (i) by testing some empirical data on the city of Lagos, upon some specific propositions embodied in these theories; with a view towards their verification and validation; and (ii) by examining the over-all explanatory power of the theories in accounting for broad urban ecological patterns as revealed by data or information on the study city, and culture. The findings suggest that while similarities in urban ecological patterns in the two environments are discernible in some variables, they significantly differ in others, and even where the patterns appear to be similar, they are explainable by quite different factors. Urban ecological patterns could therefore be said to be culture-specific.     

Towards an intelligent country: China’s higher education expansion and rural children’s senior high school participation

Colleges in China were instructed to massively expand their enrollment beginning in 1999, an event referred to as China’s Higher Education Expansion (HEE). As the HEE explicitly enlarged the share of high-skilled labor, there may be a potential positive effect of the HHE on rural children’s willingness to enter senior high schools. This is because their chances to get into colleges are improved. This study found that, after controlling for other observable factors, the probability for rural eligible individuals to participate in senior high schools increased by 0.18 more than their urban counterparts from 2000 to 2005, and this result was indeed caused by the HHE via increased expected gains. Based on the empirical results, the expected returns to education are proven to be critical in educational decisions. To build an intelligent country, the government should raise returns to education by reforming the educational supply and eliminating the distortions and misallocations that depress returns to education.