Essays on Information and Urban Economics

Date of Award

Spring 5-15-2011

Author's School

Graduate School of Arts and Sciences

Author's Department

Economics

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

Chapter 1: “Rational Expectations in Urban Economics” Canonical analysis of the classical general equilibrium model demonstrates the existence of an open and dense subset of standard economies that possess fully-revealing rational expectations equilibria. This paper shows that the analogous result is not true in urban economies under reasonable modifications for this field. An open subset of economies where none of the modified rational expectations equilibria fully reveals private information is found. There are two important pieces. First, there can be information about a location known by a consumer who does not live in that location in equilibrium, and thus the equilibrium rent does not reflect this information. Second, if a consumer’s utility depends only on information about their (endogenous) location of residence, perturbations of utility naturally do not incorporate information about other locations conditional on their location of residence. Existence of equilibrium is proved. Space can prevent housing prices from transmitting information from informed to uninformed households, resulting in an inefficient outcome.

Chapter 2:“Locational Signaling and Agglomeration” Agglomeration can be caused by asymmetric information and a locational signaling effect: The location choice of workers signals their productivity to potential employers. The cost of a signal is the cost of housing at that location. When workers’ marginal utility of housing is negatively correlated with their productivity, skill-biased technological change causes a core-periphery bifurcation where the agglomeration of high-skill workers eventually constitutes a unique stable equilibrium. When workers’ marginal utility of housing and their productivity are positively correlated, skillbiased technological improvements will never result in a core-periphery equilibrium. Location can at best be an approximate rather than a precise sieve for high-skill workers.

Chapter 3:“Reversal of Fortune by Housing Markets —Competition for Talent as a Solution to Free Riding in the Presence of Local Public Goods” It is well known that free riding when offering public goods hinges on the true revelation of households’ preference for public goods. In contrast to the requirement of a large number of jurisdictions in Tiebout (1956), this paper shows that when a few jurisdictions compete for mobile talent using cultural amenities and when high-skill workers have a stronger preference for cultural amenities than low-skill workers, the equilibrium can only be partially segregated. In contrast to Acemoglu et al. (2002) where institutional reversal accounts for the reversal in relative incomes, this paper shows that the reversal of fortune may be a result of market mechanism. So the existence of housing markets turns the advantage of initially larger population into an obstacle for jurisdictional endeavors in attracting talent.

Language

English (en)

Chair and Committee

Marcus Berliant

Committee Members

Scott A. Baker, Lee Benham, Randall Calvert, Sukkoo Kim, Ping Wang

Comments

Permanent URL: https://doi.org/10.7936/K7BV7DJR

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