ABOUT THIS BOOK

AUTHOR BIOGRAPHY

TABLE OF CONTENTS

Acknowledgments

Introduction - Edward L. Glaeser
DOI: 10.7208/chicago/9780226297927.003.0001
[agglomeration economies, knowledgeable neighbors, high wages, housing prices, productivity]
Agglomeration economies emphasize the role that cities can play in speeding the flow of ideas. The core idea at the center of information-based agglomeration economies is that all of the knowledge builds on things that one learns from the people around. The central premise is that the presence of knowledgeable neighbors enables an apprentice steelworker to learn his craft, but it also makes a biotechnology researcher more innovative. The interaction of smart people in urban areas enhances the development of person-specific human capital and increases the rate at which new ideas are formed. A central paradox is that in cities, industrial agglomerations remain remarkably vital, despite ever easier movement of goods and knowledge across space. One of the facts that support the existence of agglomeration economies is the strong relationship between density and high wages. Understanding agglomeration economies requires moving beyond measuring the overall extent of agglomeration as revealed by housing prices, productivity, and population concentration and the exact mechanisms that make it more productive to cluster. The measurement of such nonlinearities is only one of the pressing topics for future research in this area. (pages 1 - 14)
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Estimating Agglomeration Economies with History, Geology, and Worker Effects - Pierre-Philippe Combes, Gilles Duranton, Laurent Gobillon, Sébastien Roux
DOI: 10.7208/chicago/9780226297927.003.0002
[endogenous quantity, labor, urban agglomeration, employment density, historical instruments, geological characteristics]
This chapter addresses the issues of endogenous quantity and endogenous quality of labor, provides a simple model of productivity and wages in cities, and discusses the two main estimation issues. It presents the wage data and the worker-fixed approach to the endogenous quality of labor bias. Cities attract skilled workers so that the effects of skills and urban agglomeration are confounded. Urban agglomeration is a consequence of high local productivity rather than a cause. An instrumental variable approach introduces a new set of geological instruments in addition to standard historical instruments. Furthermore, the chapter shows the results for wages and productivity. Long lags of endogenous explanatory variables make for strong instruments, and geological characteristics are more complicated instruments to play with. The simultaneity problem between employment density and local wages/productivity is relatively small. Better workers are located in more productive areas. This sorting of workers by skills (observed and unobserved) is quantitatively more important than the endogenous quantity of labor bias. The future work would develop more sophisticated approaches to deal with the sorting of workers across places. (pages 15 - 66)
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Dispersion in House Price and Income Growth across Markets - Joseph Gyourko, Christopher Mayer, Todd Sinai
DOI: 10.7208/chicago/9780226297927.003.0003
[house price, income growth, metropolitan statistical areas, urban productivity, equilibrium structure]
The growing dispersion in house price and income growth rates across metropolitan statistical areas is one of the most important stylized facts about metropolitan areas in America. This chapter sheds light on the basic facts about the spatial distribution of house prices and incomes. One possibility is that the value of agglomeration is rising in some inelastically supplied cities. Another is that these cities simply have become more productive, but not due to agglomeration. A third possibility is that the level of amenities in these cities has grown. The fourth explanation is that the dispersion in house price growth arises from an increasing number of high-income families at the national level, combined with households sorting across metropolitan areas. The chapter presents a spatial equilibrium structure to decompose the patterns of income, population, and housing unit growth, to show how superstar cities differ from other cities in regard to growth in their amenities, productivity, and housing supply. This framework implies that superstar cities have much lower housing supply growth than other cities. This review concludes that it is unlikely that growth in urban amenities, urban productivity, or agglomeration benefits are the sole causal forces involved. (pages 67 - 104)
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Cities as Six-by-Six-Mile Squares - Thomas J. Holmes, Sanghoon Lee
DOI: 10.7208/chicago/9780226297927.003.0004
[urban economics, size distribution, Zipf's law, six-by-six-mile, geographic units]
A question in urban economics that has attracted much attention is the extent to which the size distribution of cities obeys Zipf's law. This chapter considers a new approach to looking at population distributions that sweeps out any decisions made by bureaucrats or politicians. When comparing populations of geographic units, differences fall along two margins. First, one unit can have a larger population than another because it encompasses a greater land area, holding population density fixed. Second, a unit can have a larger population on a fixed amount of land; that is, higher population density. The chapter analyzes size distribution by cutting the map of the continental United States into a uniform grid of six-by-six-mile squares, and examines the distribution of population across the squares and the extent to which Zipf's law holds for each. A joint analysis of the distribution of population of squares within and across metropolitan areas is a fruitful area for further research. (pages 105 - 132)
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Labor Pooling as a Source of Agglomeration - Henry G. Overman, Diego Puga
DOI: 10.7208/chicago/9780226297927.003.0005
[agglomeration economies, labor market pooling, Annual Respondents Database, microeconomic foundations, empirical analysis]
This chapter focuses on a potential source of agglomeration economies that has received particular attention: labor market pooling. A localized industry gains a great advantage from the fact that it offers a constant market for skill. A simple model is used to clarify the microeconomic foundations of labor pooling as a source of agglomeration economies and to motivate empirical analysis. The model is a version of the labor pooling model of Krugman which predicts that sectors whose establishments experience more idiosyncratic volatility will be more spatially concentrated. The chapter assesses the importance of labor market pooling as a source of agglomeration economies empirically and provides establishment-level data from the United Kingdom's Annual Respondents Database, which underlies the Annual Census of Production. The sectors whose establishments experience more heterogeneous employment shocks have greater potential to benefit from labor pooling and, to exploit this, will be more spatially concentrated. It is often argued that urbanization is more important for services than for manufacturing. (pages 133 - 150)
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Urbanization, Agglomeration, and Coagglomeration of Service Industries - Jed Kolko
DOI: 10.7208/chicago/9780226297927.003.0006
[services industries, agglomeration, urbanization, trading affects, information technology]
The economic future of cities depends on services, and understanding why services are in cities is essential to understanding the function of cities in modern economies. Service industries that rely more on information technology are even less likely to colocate at the state level, which suggests that the Internet substitutes for phone, mail, and travel in service industries, though not for in-person interactions. The purpose of the analysis is twofold: first, to see what, if anything, explains agglomeration and urbanization in service industries; and second, to see if similar forces explain agglomeration in both manufacturing and services. This chapter discusses whether industries that trade with each other also agglomerate together and whether trading affects coagglomeration differently for services than for manufacturing. These findings on urbanization, agglomeration, and coagglomeration reveal why services are more urbanized yet less agglomerated than manufacturing. The chapter argues that the differential effect of information technology on manufacturing and services is because electronic communication dramatically lowers the cost of transporting intangibles, especially over longer distances, but not the cost of transporting tangible goods. (pages 151 - 180)
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Who Benefits Whom in the Neighborhood? - Joel Waldfogel
DOI: 10.7208/chicago/9780226297927.003.0007
[agglomerating groups, local market, residential segregation, local preferences, nonlinear effects]
This chapter presents a sensitivity of the nearby availability of products to preferences, measured along multiple dimensions. This evidence indicates that agglomeration rewards members of agglomerating groups via the availability of products in the local market. It provides part of the explanation for residential segregation and a first step toward assessing the impact of private goods and the tendency to agglomerate. Persons of similar preferences who agglomerate experience greater availability of goods targeted to their tastes. The idea that agglomeration benefits consumers through supply-side nonconvexities suggests a possibility of nonlinear effects of group size on welfare. The chapter addresses three empirical questions. First, it asks how “preferences” differ across groups (race, education, income), and uses the 2004 Consumer Expenditure Survey, which shows how households allocate their expenditures across narrow product categories. The 2000 Census and the 2000 ZIP Business Patterns show that the availability of outlets in a category varies with the number of persons, by type, in local areas. Finally, the chapter discusses whether the mix of products is sensitive to the mix of local preferences, or whether people derive benefit through the product market from agglomerating with persons of similar preferences. (pages 181 - 210)
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Understanding Agglomerations in Health Care - Katherine Baicker, Amitabh Chandra
DOI: 10.7208/chicago/9780226297927.003.0008
[health care, agglomeration economies, information spillovers, medical sector, public policies]
Analysis of the health care sector provides a valuable window into the causes of variation in productivity across areas and the role of agglomeration in generating innovation and efficiency. Understanding the drivers of productivity differences across areas is crucial to designing effective public policies to promote growth and efficient use of resources. The agglomeration economies literature explores the positive link between productivity and city size or density: cities, by virtue of their density, may facilitate the generation, transmission, and acquisition of new ideas. This chapter concerns the drivers of differences in medical sector productivity to understand agglomeration economies better, particularly the role that information spillovers play in making some places more productive. This investigation into variation in the use of high-value, low-cost health care and high-cost, low-value health care has yielded a number of surprising facts. First, there is a large variation in the use of both innovations, but with different patterns across areas. Second, hospitals seem to learn from their neighbors about both forms of care at similar rates. These findings thus have implications both for the optimal design of public subsidization of quality-improving investment and for payments for lower-value care through public insurance programs such as Medicare. (pages 211 - 236)
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The Agglomeration of U.S. Ethnic Inventors - William R. Kerr
DOI: 10.7208/chicago/9780226297927.003.0009
[ethnic inventors, economic growth, U.S. technology, immigrant researchers, econometric studies]
Econometric studies quantifying the role of ethnic scientists and engineers for technology formation and diffusion are often hampered by data constraints. It is very difficult to assemble sufficient cross-sectional and longitudinal variation for large-scale panel exercises. This chapter describes a new approach for quantifying the ethnic composition of U.S. inventors. The study of how U.S. ethnic inventors agglomerate is very important, given the disproportionate contributions of immigrant researchers and their nonrandom spatial distribution across the United States. Such a characterization is necessary for understanding the geography of U.S. innovation and economic growth. Moreover, the spatial variation of immigrant researchers across cities allows for stronger quantitative assessments of the role of innovation in city growth. The chapter also discusses the growing contribution of ethnic inventors to U.S. technology formation and uses the patenting data to calculate concentration indices for U.S. innovation. It is hoped that the empirical platform developed in this study provides a foothold for furthering such analyses. (pages 237 - 276)
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Small Establishments/Big Effects - Stuart S. Rosenthal, William C. Strange
DOI: 10.7208/chicago/9780226297927.003.0010
[urban thinking, organization–agglomeration relationship, agglomeration economies, metropolitan statistical areas, labor market pooling]
There is a long history of urban thinking that has considered the role of the organization of production into firms in the generation of increasing returns. This chapter discusses an econometric analysis of the organization–agglomeration relationship. It considers the relationship between the corporate organization of production (into establishments) and the spatial organization of production (into cities). Agglomeration economies are inherently geographic in nature. It does not matter whether the increasing return arises from consumer–supplier linkages, from entrepreneurial spillovers, or from knowledge spillovers or labor market pooling. The chapter concerns the microfoundations of the external increasing returns that give rise to the agglomeration patterns observed in the data, and reviews the theoretical and empirical literatures on industrial organization and agglomeration. The models of the birth of small establishments and the magnitude of their operations are also estimated. This estimation is carried out at the census tract level, using within metropolitan statistical areas variation in local industrial organization to estimate the models. (pages 277 - 302)
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Did the Death of Distance Hurt Detroit and Help New York? - Edward L. Glaeser, Giacomo A. M. Ponzetto
DOI: 10.7208/chicago/9780226297927.003.0011
[communication, transport costs, urban areas, information technology, hurt cities]
This chapter advances the hypothesis that improvements in transportation and communication technology can explain both the decline of Detroit and the reinvigoration of Manhattan. A model illustrates how reductions in the costs of communication can cause manufacturing cities to decline and innovative cities to grow. Reductions in transport costs reduce the advantages associated with making goods in the Midwest, but they increase the returns to producing new ideas in New York. The model suggests that future improvements in information technology will continue to strengthen cities that are centers of innovation but continue to hurt cities that remain oriented toward manufacturing. The great challenge to urban areas therefore comes from the possibility that innovation will also leave dense agglomerations. As long as improvements in information technology continue to increase the returns to having new ideas, the edge that proximity gives to innovation seems likely to keep such agglomerations strong. (pages 303 - 338)
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New Evidence on Trends in the Cost of Urban Agglomeration - Matthew E. Kahn
DOI: 10.7208/chicago/9780226297927.003.0012
[urban agglomeration, pollution, population size, congestion, U.S. census regions]
Congestion, pollution, and crime represent three important factors that discourage urban agglomeration. This chapter examines how the population elasticity of producing local public bads such as crime, pollution, and commute times has changed over time and how it varies across U.S. census regions. It shows significant geographical variation in the relationship between ambient air pollution and population size, and between crime and population size, using a production function approach to estimate how city size is associated with local public bads at different points in time and across U.S. regions. The results complement a recently revealed preference literature that has used cross-city hedonic approaches to infer city quality of life. A hedonic approach that solely focuses on conducting a separable decomposition by teasing out each of these effects individually is likely to underestimate the overall impact of these factors on urban quality of life. The net effect of crime and pollution reductions is stronger cities. This reduction in the cost of “city bigness” means that cities can grow and enjoy the beneficial effects of agglomeration. (pages 339 - 354)
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Contributors

Author Index

Subject Index