Economics 7800: Urban Economics


Instructor:         Prof. Allen Goodman

2145 FAB


Class Hours:     MW 10:40 – 12:30


Location: 2072 FAB


Office Hours: MW 12:30 – 1:30, or by appointment

Phone: 577-3235; e-mail:

Department and Course Web-site:


Subject matter: The city as an economic system, including rents, prices and locations of activities.  Monocentric and polycentric models.  Topics include housing and real estate, industrial location, and racial segregation and discrimination.  Both economic theory and empirical applications will be presented.


This is the first course of a two-semester graduate level urban and public economics course, designed to provide a rigorous treatment of modern urban economics.  The second semester, taught by Prof. Ralph Braid, focuses on public economics. 


            Students will be responsible for the following assignments in (roughly) chronological order:


  • 1st  short in-class presentation                                                                             5.0%


  • short paper on segregation                                                                                12.5%


  • mid-term exam – Tuesday  October 23                                                 25.0%


  • longer paper on housing (15 - 20 pages)                                                           20.0%


  • 2nd short in-class presentation (on paper)                                                           12.5%


  • Final exam – Wednesday December 19, 8:00 a.m. – 10:30 p.m.                       25.0%


The written assignments will involve some data analysis.  Most of the data will be provided to you.  It will be necessary to have (or obtain) a passing knowledge of Microsoft EXCEL in order to manipulate the data.  You will also wish to use the regression package of your choice to do some regression analysis.


Text: Urban Economics and Real Estate Markets, Denise DiPasquale and William Wheaton. (DW).  This will be available for purchase.


Another book, which is now somewhat dated, but which has always contained good readings, is Current Issues in Urban Economics, by Mieszkowski and Straszheim (M&S).  Two  good background texts are Urban Economics, by Mills and Hamilton (5th Edition), which was most recently updated in 1994, and Urban Economics, by O’Sullivan (4th Edition), which is more current.  There will also be readings from The Economics of Housing Markets, by Goodman and Muth (GM).


            The following topics will be covered by Prof. Goodman in the first semester.  Readings will be drawn from the attached list.  Other readings may be added.  The course outline follows:


I.   Introduction


II.  Models of Location and Spatial Interaction


            A.  Monocentric Models

            B.  Nonmonocentric Models


III. Housing Markets and Policies


            A.  Housing Markets

            B.  Prejudice and Discrimination

            C.  Urban Housing Policy


IV. Non-Residential Property Markets


IV.  Externalities and Local Government


            A.  Theory - Agglomeration, Congestion and Pollution

B.     Air Pollution and Property Values


The final exam, as noted on Page 15 of the Fall course schedule will be:


            Thursday, December 19, from 8:00 A.M. to 10:30 A.M


The following percentage curve will guide the grading policy in the course.


A ;

85 – 100


75 – 79.9

C+ ;

55 – 59.9


80 – 84.9

B  ;

70 – 74.9

C   ;

50 – 54.9



B- ;

60 – 69.9


Below 50



Absences and Make-Up Policy


            Attendance records will be kept.  Students who miss more than 20% of classroom time will have their grades reduced by one increment (for example, from B+ to B, or B- to C+).   


            Make-up requests must be medical in nature, and must be accompanied by a

signed document from a health professional that indicates the nature of the illness, and the reason

that the exam could not be taken.


            There will be no advance make-up scheduling for mid-term exams, with the exception of

religious holidays.  Requests for an alternative date for the final must be made in writing, in advance of the exam.


Drop policy


            Students will have until Monday, December 1, at 5:00 P.M. to withdraw from the course with a “W.”  After this date, I will not sign any withdrawal forms.


Academic Misconduct


            Any instance of academic dishonesty for any assignment will lead to a grade of 0 on the

assignment.  The appeal process as noted in the Student Due Process Procedure will be strictly






DW 1, 2


Anas, Alex, Richard Arnott, and Kenneth A. Small, “Urban Spatial Structure,” Journal of Economic Liturature 36 (September 1998): 1426-1464.


Cityscape, Volume 1, Number 2,  June 1995, edited by Michael Stegman.


Chinitz, Benjamin, “Contrasts in Agglomeration: New York and Pittsburgh,” in Readings in Urban Economics, ed. Matthew Edel and Jerome Rothenberg, New York: Macmillan, 1972.


Frey, William H., and Fielding, Elaine L., “Changing Urban Populations: Regional Restructuring, Racial Polarization, and Poverty Concentration,” Cityscape, Volume 1, Number 2. pp. 1-66.


Ihlanfeldt, Keith, “The Importance of the Central City to the Regional and National Economy: A Review of the Arguments and Empirical Evidence,” Cityscape, Volume 1, Number 2. pp.  125-150.


Krugman, Paul, “Increasing Returns and Economic Geography,” Journal of Political Economy 99 (1991): 483-499.


Mieszkowski, Peter, and Edwin Mills (1993), “The Causes of Metropolitan Suburbanization,” Journal of Economic Perspectives 7: 135-147.


Mills, Edwin (1992), “The Measurement and Determinants of Suburbanization,” Journal of Urban Economics 32:377-387.


Mills, Edwin, Studies in the Structure of the Urban Economy, Ch. 1


Neary, J. Peter, “Of Hype and Hyperbolas: Introducing the New Economic Geography,” Journal of Economic Literature 39 (June 2001): 536-561.


Monocentric and Nonmonocentric Models


DW, 3-7.


Alonso, William, Location and Land Use (1964). Chs. 1, 2, 4, 6


Braid, Ralph, “Optimal Spatial Growth of Employment,” Journal of Urban Economics 1988  


Brueckner, Jan, “The Structure of Urban Equilibria: A Unified Treatment of the Muth-Mills Model,” Handbook of Regional and Urban Economics, Volume II, Edwin W. Mills Ed., 1987: 821-845.


Dubin, Robin, “Commuting Patterns and Firm Decentralization,” Land Economics  Vol. 67, 1991, pp. 15-29. 


Eberts, Randall, “An Empirical Investigation of Intraurban Wage Gradients,” Journal of Urban Economics  10 (1981): 50-60.


Giuliano, Genevieve and Kenneth Small, “Subcenters in the Lost Angeles Region,” Regional Science and Urban Economics 21 (1991).


Hamilton, Bruce, “Wasteful Commuting,” Journal of Political Economy 90(5)

            1035-1053 (1982)


Harrison, David and Kain, John, “Cummulative Urban Growth and Urban Density Functions,” Journal of Urban Economics 1(1) 61-98 (1974)


Helsley, Robert and Arthur Sullivan, “Urban Subcenter Formation,” Regional Science and Urban Economics 21 (1991): 255-75.


Ingram, Gregory, “Simulation and Econometric Approaches to Modeling Urban Areas, ” M&S Ch. 5


Jackson, Jerry, “Intraurban Variation in the Price of Housing,” Journal of          Urban Economics 6, 464-79 (1979)


McCauley, Molly, “Estimation and Recent Behavior of Urban Population and Employment Density Gradients,” Journal of Urban Economics (1985)


McDonald, John, Economic Analysis of an Urban Housing Market, Chs 1, 5, 8


McDonald, John, and Bowman, H. W., “Some Tests of Alternative Urban Population Density Functions,” Journal of Urban Economics (1976)


McMillen, Daniel P., “Polycentric Urban Structure: The Case of Milwaukee,” Federal Reserve Bank of Chicago Economic Perspectives 2Q/2001.


Mills, Edwin, Studies in the Structure of the Urban Economy, Chs. 2, 3, 5


Mills, Edwin S. and Hamilton, Bruce W., “Simplified Mathematical Model of Urban Structure,” in Mills, Edwin W., and Hamilton, Bruce W., Urban Economics.


Moses, Leon and Williamson, Harold “The Location of Economic Activity in Cities,” American Economic Review (1967), in Edel and Rothenberg (1972).


Schmenner, Roger, “Choosing New Industrial Capacity: On-site Expansion,Branching, and Relocation,” Quarterly Journal of Economics (1980)


Sullivan, Arthur M., “The General Equilibrium Effects of the Residential Property Tax: Incidence and Excess Burden,” Journal of Urban Economics 18 (1985): 235-50.


Turnbull, Geoffrey, Urban Consumer Theory, Selected chapters.


Wheaton, William, “A Comparative Static Analysis of Urban Spatial Structure,” Journal of Economic Theory 9(2), 223-37 (1974)


Wheaton, William, “Income and Urban Residence,” American Economic Review 67(4), 620-31 (1977)


Wheaton, William, “Monocentric Models of Urban Land Use,” M&S, Ch 4





DW, 8-10.


GM, monograph.


Anas, Alex, Residential Location Markets and Transportation, Ch 2


Anas, Alex, and Eum, Sung Jick, “Hedonic Analysis of a Housing Market in

            Disequilibrium,” Journal of Urban Economics 15(1) (1984)


Andrikopoulos, Andreas and Brox, James, “The Urban Housing Market:  A New Approach for Estimating Demand for Housing by Dwelling Type,” Journal of Urban Economics 15(2) 230-43 (1984)


Arnott, Richard, “Economic Theory and Housing,” Handbook of Regional and Urban Economics, 1987


Bailey, Martin, “A Note on the Economics of Residential Zoning and Urban Renewal,” Land Economics 42(3) 288-92


Becker, Gary, The Economics of Discrimination, (1971)


Courant, Paul, “Racial Prejudice in a Search Model of the Urban Housing         Market,” Journal of Urban Economics 5(3) 329-45 (1978)


Courant, Paul, and Yinger, John, “On Models of Racial Prejudice and Urban Residential tructure,” Journal of Urban Economics 4(3) 272-91 (1977)


Cutler, David M., Glaeser, Edward L. “Are Ghettos Good or Bad,” Quarterly Journal of Economics 112 (3) 827-872 (1997).


Cutler, David M., Glaeser, Edward L., Vigdor, Jacob L., “The Rise and Decline of the American Ghetto,” Journal of Political Economy 107 (3) 455-506 (1999).


de Leeuw, Frank, “The Demand for Housing: A Review of Cross Section Evidence,” Review of Economics and Statistics 53(1) 1-10 (1971)


de Leeuw, Frank and Elkanem, Nkanta, “The Supply of Rental Housing,” American Economic Review 61(5), 806-817 (1971)


Friedman, Joseph and Weinberg, Daniel, The Economics of Housing Vouchers



Goodman, Allen C., “Hedonic Prices, Price Indices and Housing Markets,” Journal of Urban Economics 5(4), 471-484 (1978)


Goodman, Allen C., “An Econometric Model of Housing Price, Permanent Income, Tenure Choice and Housing Demand,” Journal of Urban Economics (September 1988)


Goodman, Allen C., and Kawai, Masahiro “Estimation and Policy Implications of Rental Housing Demand,  Journal of Urban Economics 16(1) 76-90 (1984)


Goodman, Allen C., and Kawai, Masahiro, “Permanent Income, Hedonic Prices and the Demand for Housing,” Journal of Urban Economics 12(1) 212-237 (1982)


Grieson, Ronald, “The Supply of Rental Housing: Comment,” American Economic Review 61(5), 806-817 (1973)


Hoffman, Michael, Haupt, Barbara, and Struyk, Raymond, “International Housing Markets: What We Know; What We Need to Know,  Fannie Mae Working Paper, 1992.


Kain, John and Quigley, John, “Evaluating the Quality of the Residential Environment,” Environment and Planning 2(1) 23-32 (1970)


Kain, John and Quigley, John, Housing Markets and Racial Discrimination, Chs 1, 2, 10


Lapham, Victoria, “Do Blacks Pay More for Housing?” Journal of Political Economy 79(6) 1244-57 (1971)


Mankiw, N. Gregory and Weil, David N., “The Baby Boom, the Baby Bust, and the Housing Market,” Regional Science and Urban Economics 19 (1989): 235-238.


Mayo, Stephen, “Theory and Estimation in the Economics of Housing Demand,” Journal of Urban Economics (1981)


Megbolugbe, Isaac and Linneman, Peter D., “Home Ownership,” Urban Studies 30 (May 1993): 659-682.


Murray, Michael P., et al, “Analyzing Rent Control: The Case of Los Angeles,” Economic Inquiry 29 (October 1991): 601-625.


Quigley, John M., “What Have We Learned About Housing Markets,” M&S Ch 12


Olsen, Edgar “The Demand and Supply of Housing Services,” Handbook of Regional and Urban Economics, 1987


Roychoudhury, Canopy, and Goodman, Allen C., “An Ordered Probit Model for Estimating Racial Discrimination through Fair Housing Audits,” Journal of Housing Economics 2 (December 1992): 358-373.


Rosen, Sherwin, “Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition,” Journal of Political Economy 82(1), 34-55 (1974)


Weicher, John, “Urban Housing Policy,” M&S Ch 14


Yinger, John, “Prejudice and Discrimination in the Urban Housing Market,” M&S Ch 13


Yinger, John, “Racial Prejudice and Residential Segregation in an Urban Model,” Journal of Urban Economics 3(3) 383-406 (1976)


Yinger, John, “Measuring Racial Discrimination with Fair Housing Audits: Caught in the Act,” American Economic Review 76 (December 1986): 881 - 892.


Nonresidential Property Markets


DW, 11, 12.


Anderson, John E., and Wassmer, Robert W., Bidding for Business: The Efficacy of Local Economic Development Incentives in a Metropolitan Area, Upjohn Institute, May 2000,


Clapp, J. M., Dynamics of Office Markets, Chapters 1 and 2


Colwell, Peter F., “Tweaking the DiPasquale-Wheaton Model,” Journal of Housing Economics 11 (2002): 24-39.


Noll, Roger, Sports, Jobs, and Taxes: The Economic Impact of Sports Teams and Stadiums, 1997.


Wheaton, W.C., and Torto, R.G., “Office Rent Indices and Their Behavior Over Time,” Journal of Urban Economics 35, 112-139 (1994).


Externalities and Local Government


DW, 13, 14.


Baumol, William J., “The Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis,” American Economic Review 55 (1967): 414-426


Cropper, Maureen L., et al, “Valuing Product Attributes Using Single Market Data: A Comparison of Hedonic and Discrete Choice Approaches,” Review of Economics and Statistics 75 (May 1993): 225-232.


Dubin, R. A. and Goodman, A. C. “Valuation of Education and Crime Neighborhood Characteristics Through Hedonic Prices” Population and Environment  Vol. 5,  No. 3, Fall 1982, pp. 166-181. 


Hamilton, Bruce W., “Capitalization of Interjurisdictional Differences in Local Tax Prices,” American Economic Review 66 (1976): 743-753.


Hanke, Steve, and Niskanen, William, “Land Prices Substantially Underestimate the Benefits of Land Enhancements,” Review of Economics and Statistics (November 1977)


Kneese, Allen V., Economics and the Environment, Ch. 6.


Lind, Robert C., “Spatial Equilibrium, the Theory of Rents and Public Program Benefits,” Quarterly Journal of Economics (May 1973)


Polinsky, A. M., and Shavell, Steven, “Amenities and Property Values in a Model of an Urban Area,” Journal of Public Economics (April 1976)


Ridker, Ronald, and Henning, John, “The Determinants of Residential Property Values with Special Reference to Air Pollution,” Review of Economics and Statistics (May 1967)


Smith, V. Kerry, “Unbalanced Productivity Growth and the Growth of Public Services,” Journal of Public Economics 10 (1978): 133-135.


Strange, William, Overlapping Neighborhoods and Housing Externalities, Journal of Urban Economics (September 1992):


Tauchen, Helen, and Witte, Anne D., “Socially Optimal and Equilibrium Distributions of Office Activity,” Journal of Urban Economics (January 1984)


Wheaton, William, “Price-Induced Distortions in Urban Highway Investment,” Bell Journal of Economics (Fall 1978).