General Discussion of “Urban

Competition”DAVID ALBOUY, UNIVERSITY OF ILLINOIS

Midcity

Suburbs

Central

Brueckner’s “Bi-spanning” Bridges

Brueckner’s Bispanning BridgesAdvanced application of the “self-financing theorem”o Constant returns in building capacity to alleviate congestiono Can apply to an unbounded number of bridges.

Monopoly pricing?o If midcity owned the suburban bridgeo If central city owned eithero Benefits ruled out by budget balance condition: but could be passed on with lump-sum transfers

Could the midcity bridge price discriminate?o Different fees to suburban residentso Don’t suburban residents create other externalities going through midcity?

Sequential equilibriumoWhat if the suburbs developed later? oMidcity-central bridge too small: should charge more, until new one built.

3 “Jurisdictions”:The Ambassador BridgeFinished in 1929. Cost?o $1-2 Billion for new bridge.

Capacity of four lanes (initially 5)o Annual 5M autos at $5 each; 3M commercial vehicles at ~$20 each = $85M annuallyo Long wait times at border crossings

25% of U.S. Canada merchandise passes through

Privately owned by Manuel “Matty” Moroun o Through Detroit International Bridge Companyo Sells duty free gas at only a slight discount.

Company held in contempt for failing to make access improvements

Getting competition from the New International Trade Crossingo To be paid for entirely by Canada (with tolls)o Held up by Moroun legal and political maneuvering

U.S., Canada, and Private

Land use in McMillen’s former suburb

Napierville, IL

Other kinds of externalities across state borders

Primm, NV(formerly “State Line”)

Are discontinuous policies efficient?

Breakdown of Tiebout: space matters!

45 minute drive to Las Vegas; (3 hr 15 min to LA)

Las Vegans and others started turning out as early as 6 a.m. Thursday at the Primm Valley Lotto Store to claim their spot in line and get a chance to win the largest Mega Millions jackpot in history.

$1 ticket for a shot at the record $540 million jackpotBy 11:30 a.m., the line…stretched to more than 1,000 people.

Since lottery tickets are not sold in Nevada, the Primm Valley Lotto Store on the California-Nevada border is one of the closest places Las Vegas residents can get a piece of the Mega Millions action.

Jacob-McMillen BordersIs there a more specific way of modeling the behavioral response?o Changes in quantity relative to changes in price.o Transportation costsoMore to look at than densities and prices (although those are key)

What are the nature of the externalities?o Aesthetic, pollution, moralo Could make better sense of the policies and repsonses

When are the border effects stronger?o Stronger local governments

Is zoning as efficient as a tax or impact fee system?

POLITICAL EXTERNALITIESRep. Luis Gutierrez4th Congressional District (1993-)Alderman of 26th ward of (1986-1992)*Wicker Park/Bucktown developed rapidly

Will soon be running for Chicago mayor…

Urban development and political externalities

“New Homes for Chicago” programModular housing very affordable

Angers local building unions

Some think its ugly (surprise)

Gas cost vs. time cost of commuting

Typical commuter drives at 20 miles per hour and gets 20 miles per gallono Each mile costs 0.05 gallons and 0.05 hours

The price of gas is ~ $4/gallon (after tax) and average wages are ~$24/hour (pre tax)

A difference of six times! o 20 cents a mile in gas

2.5 cents/mile in tax (1 cent federal, 1.5 cents state) 17.5 cents/mile pre-tax

o $1.20 in labor (social). Typical federal tax is 30 cents (25%) Typical state 12 cents (10% income tax + consumption) Private cost 78 cents MINUS “leisure value of commuting”

Taxes on income do much more to raise commuting distances than gas taxes do to lower them!o Should effect patterns of commuting far moreo Marginal negative externalities from driving (accidents, pollution, congestion): ~15 to 75 cents/mileo All the more reason to tax gas more to replace income tax

Reciprocity AgreementsNO: PORTLAND,OR AND VANCOUVER, WA

Washington: no income tax; 9% sales tax

Oregon: no sales tax; 9% income tax

YES: PHILADELPHIA, PA & CAMDEN, NJ

Pennsylvania: 3% income; 8% sales (Philadelphia + 1% payroll)

New Jersey: 5% income; 7% sales

Income TaxTexas: noneArkansas side: received an exemption in 1970

Sales TaxTexarkana, TX: 8.25%Texarkana, AR: 12.5%

PopulationTexas: 37,000

Arkansas: 30,000

Agrawal Hoyt Bi-taxed CitiesGreat use of datao Always wanted to see this tested

What about benefits of living in each state?o Taxes come with benefitso Or do some states have fiscal advantages from other sources.

What happens when the crossing cost is zero?o The crossing cost is potentially endogenous?

Brueckner’s bridges!