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Ades and Glaeser (1995)Main Question of the Paper:Explain the effects of Politics on Urban ConcentrationIdentification StrategyDifferentiate the effects of political forces on urban concentration from other theories (Trade and Commerce and Industry)Causality issues: Do dictatorships lead to spatially concentrated areas, or spatially concentrated areas are more likely to have dictatorships?

How do Policy Affects Urban ConcentrationPeople living in the capital city have more influence on the government than people living in the countyDistance from city lessens influence on government

Governments transfer resources to the capital, and these attract migrants to the main city

Distance lowers violence threatPolitical actions less notoriousDistance reduces informationLess communication

Political power of capital residents is most important:No political rights to residents hinterlandLarge rents to dispenseRespond easily to local preassure

Results Table IV

Results Table VITransport expending, trade and dictatorship variables are endogenous:

Possible instruments:Regional Political XsPredetermined Political XsRegional InfrastructureMain Assumption:

DiscussionWhy is the paper important? Is it important to understand size of cities?What are the tradeoffs between costs from a big cities and economies in a big city?Is this different in developing countries or developed countries?Do you believe their results?Evidence from today, what is the variation driving the results in their empirics?Cities in the 21st century?

World's 17 Biggest Cities by 2000Population CityPopulation Country% Population in City% City RankTokyo26.40126.870.212Mexico City18.1097.970.183Sao Paulo18.00170.100.115New York16.70282.220.0610Mumbai16.101,015.920.0213Los Angeles13.20282.220.0512Calcutta13.101,015.920.0114Shanghai12.901,262.650.0116Dhaka12.50131.050.106Delhi12.401,015.920.0115Buenos Aires12.0036.780.331Jakarta11.00206.270.0511Osaka11.00126.870.097Beijing10.801,262.650.0117Rio de Janeiro10.70170.100.069Karachi10.00138.080.078Metro Manila10.0076.630.134Note: Population of city is based on the United Nations World's Urbanization Prospect, country population source is the World Bank's Development indicators.

Introduction to Land RentChapter 7

Goal of the ChapterThis chapter answers 3 main questions: 1) What determines the price of land? 2) Who benefits from the public policies that increase fertility or accessibility toland? 3) Does the land market allocate land efficiently?

Two DefinitionsLand Rent: The price paid in a period of time for the right to use the land. Market Value: Present value of the stream of rental income generated by land. if

The Market Values of a piece of land is the maximum amount that an investor is willing to pay for the land, giving that the best alternative investment yields a return of i percent per year.

Land Rent and Fertility (Ricardian Model of Land Rent, 1821)Assumptions: 1) Fixed inputs and output prices set by the market2) No economic profits3) 3 types of land: high, medium and low productivity4) Land is rented to the highest bidder5) Zero transportation costs

Fertility and Land Rent $Corn MarketHigh FertilityMedium FertilityLow FertilityQQQQSDMCMCMCATCATCATC

AnalysisAnalysis: The high fertility land yields the highest pre-rent profits, followed by the medium fertility land and then the low fertility land. That is because it has lower non-land costs (fertilizer, seeds, tractors, etc.). Since there are no barriers to entry, farmers will be willing to pay rent that equals all economic profits. Definition: Left Over Principle. In equilibrium land rent equals the excess of revenue over non-land costs.

A Policy ExampleAssume a policy that decreases costs, like an aqueduct or irrigation project. The cost curves for all three types of land will go down.$Corn MarketHigh FertilityMedium FertilityLow FertilityQQQQSDMCMCMCATCATCATCS

Analysis: Policy SubsidyAnalysis: Step 1: Pre-rent profits increase, competition among farmers will bid up the price of land, up to the point where economic profits are zero. The savings in the production costs go to the landowner in the form of higher rent.Analysis: Step 2: Since the marginal costs curves are shifting downward, the supply from the high and medium fertility land will increase. Furthermore, the low fertility land, that used to be shut down, now produces corn. This shifts the supply curve even more to the right and lowering prices, so consumers will also benefit. Who wins and who looses from the subsidy? The smaller the geographical area covered by the irrigation program, the larger the benefits that go to landowners.

Interactions between Land and Product Markets Corn Laws in England:Since the supply of land is inelastic, a policy eliminating corn imports, will increase the demand for domestic corn. This in turn increases the marginal product of land, increasing the demand for land and thus the price of land. $$TQSd1d2SCorn MarketLand MarketD2D1

Land TaxationProperty taxes: Land and investments in the land are taxed on the same rate100% Tax on Rental Income: (Henry George, 1880) Taxes all land, not investmentsPartial Land TaxTwo-Rate or Split TaxAustralia, New Zealand, Pittsburgh

An application: 9/11 and New York CityHaughwout and Rabin (2005): Exogenous Shocks and the Dynamics of City Growth: Evidence from New York CityFind the spatial responses of New York City on 9/11:Human CapitalResidential LocationOffice Location

Employment in New York City

Real Estate in New York CityResidents who signed 2 year commitment on Manhattan were eligible for a 12K grant

Rentals in Lower ManhattanAre more expensive rentals after 9/11 in lower Manhattan a function of:Better AmenitiesSubsidy on Demand (leftover Principle)Negative Shock on Supply

Office Markets

ConclusionIt is hard to conclude that 9/11 had an effect on human capital or physical capital on Manhattan.Most changes predated 9/11The one effect is on Manhattan rentals, where the price increased by approximately 8,000 dollars for a two-year rent