Question

One of the most important changes in U.S. cities over the past two decades is a dramatic reduction in violent crime. In this problem, we consider the impact of falling urban crime rates in a Rosen-Roback framework.

1. Suppose that crime is a consumer disamenity. Show the impact of a reduction in crime in a standard Rosen-Roback graph. How are equilibrium wages and rents affected in the city? [7 points]

2. Now suppose that falling crime also allows firms to be more productive, for example, because they have to spend less money on security. Show how this changes the graph that you drew for part 1. What can we say about changes in wages and rental rates under this scenario? [7 points]

3. Now suppose that there are two types of workers in the model, high-skilled and low- skilled workers. Suppose that the only effect of falling crime is on the consumer amenity experienced by low-skilled workers, who are more likely to live in high-crime neighborhoods. Draw graphs describing how this affects equilibrium wages and rents for both high and low-skilled workers (i.e., draw two different graphs). [14 points]

Answer 1

violent crime in the u.s.has fallen sharply over the past quarter century the other is a nationally representative annual survey by the bureau of justice statistics,which asks appapproximately 160000 americans ags 12 and older whether they were vice tims of crime, regardless of whe ther they reaported those crimes to the police. the two most commonly cited sources of crime statistics in the U.S. both show a substantial decline in the vilontcrime rate since it peakbe in the early 1990s.1.rosen roback framework provides a way to analyze urban amenities whether those amenities are valued by consumers or firms .unlike The monocentric city modle where we look within a single city,we use this framework to analyze differences across metropolitan areas like los angeles,new york.The rosen roback framework does not have a spatial dimension .consumer side in the basic systems of cities model ,consumer utility depended consumer goods.housing consumption,and commuting costs and that this could be summarized by an indirectly utility function. 1.crime is consumer disamentity impact of a reduction in crime in a standard rosen robeck graph they are known to economists as negative externalities.an externalitybin economics refers to a cost or benefit created by an economic agent whose effects are felt outside the sphere of operations of the agent itself.2.in the spatial equibrium framework workers have utility over tradable goods,non tradable goods and the location specifics factors.3.since utility must be equal across locations,wages and housing prices adjust to make workers indifferent there fore we can infer the value of amenities from wages and housing prices.wages,rents,and the quality of life ,jpe 1982 very famous paper from roback thesis,2700 citations not only important to urban economics literature but also quite important to labor.Environmental economics trade ,and dovelopment(migration).EQUILIBRIUM wages and rents adjust so that workers are indifferent across locations:V(W,R;S)=K(2) C(W,R;,S,)=1(3). can use equations 2 and 3 to determine wages w and rent r can very amount of amenity to see effect on curves and solve for equilibrium of w and r.roback extension the basic model by introducing a non tradable goods sector. this sector also competes for land use;incorporating this sector allows authors to derive efect of change in s on utility as function of house price changes and wages .(2)now suppose that falling crime also allows firms to be more productive because they have to less money to spend less money on securityagain assume there is labor l and tradable and non tradable capital in production of H i.endogeneity is not addressed adequately ii.unclustered standard errors are probably meaninglessiii.historical paper you can no longer writes empirics like this two prices for the larfest U.S.cities iv.wages w from the 1973 current population survey v .house price p for 1973 from the federal housing administeation vi estimates of consumption vii.attenuation bias fromself of heterogeneous agents.there are two types of worker in the model low skilled and high skilled worker a skilled worker is any worker who has special skill,training knowledge ability in their work.lower skilled worker are now in retail and service industries store cashiers customer fast food servers.ii whereas jobs in manufacturing industriesiii service industries provide lower wage.iv 70 percent wholesale and retail trade v many goverment encourafe subsidies to low skilled workers vi.their effect on employment depends on the own wage elasticity of demand for low skilled workers.vii labour market policies .viiihigh skilled workers is one who is capable of working efficiently and supervises efficiently the work of skilles employees,how effect low and high skilled worker on wage rent equbillrium in the labor market requires that the marginal revenue product of labor is equal to the wage rate,and that mpl/pl=mpk/pk.the wage rate is determined by the intersection of supply of and demand for labor.