Browsing by Author "Bayer, Patrick"

This dissertation contains three essays related to the economics of place-based policies. I focus on two place-based policies: economic development and natural disaster mitigation. Additionally, I propose a general method to characterize a geographic market structure that may be relevant in other empirical contexts.

The first essay uses a characterization of the unobserved housing market to estimate the spillover effects of an economic development policy on residential properties within the same housing market. Using a stacked difference-in-differences approach, I find a positive impact on residential property values within the targeted areas and in spatially close areas. However, economic development activities may also affect residential properties within the same housing market. If these housing markets are not contiguous, spatial spillover effects will exclude them. I estimate a negative market spillover effect. This indicates that while the policy is effective close to the targeted area, it may draw investment that otherwise would have occurred within the same housing market. I show results on business license data to support this mechanism. Although the weighted sum of the direct and spillover effects is close to zero, the policy targets relatively disadvantaged areas, suggesting that it is redistributive.

The second essay presents the methodology to estimate housing markets I use in the first essay. Over time, households or workers frequently move between homes or jobs in different geographic areas. These moves have information and can reveal the preferences of the economic agents. I use data on these moves to create a network of connected geographic areas in which two areas are connected if agents move between them. I apply a method from network theory to estimate the network's underlying group structure. With certain assumptions on the underlying model, these groups can be interpreted as housing markets (for household movement). For the empirical illustration, I show estimated housing markets in Chicago.

The third essay studies the place-based policy of natural disaster mitigation, specifically studying how levees affect households' decision to purchase flood insurance. After levee construction, the risk of flood damage decreases, which should decrease flood insurance take-up. However, certain levees undergo accreditation, after which flood insurance prices decrease. This price change may induce households to increase their take-up of flood insurance. Mythili Vinnakota and I empirically study these two mechanisms, which have an ambiguous theoretical effect. Using original data collection on accreditation dates, we apply a difference-in-differences framework to study the effect of construction, accreditation, and both construction and accreditation on flood insurance take-up. Although construction decreases flood insurance take-up, accreditation increases take-up, showing that households respond to the decrease in flood insurance price. A back-of-the-envelope cost-benefit calculation indicates that levees pay for themselves after 13 years, even after accounting for the overall crowd-out of insurance.

There is a growing consensus in the literature suggesting that where one lives has critical and significant implications for economics, education, and health outcomes for both adults and children. In addition, neighborhoods play a crucial role in shaping children's intergenerational mobility rates, contributing to the speed of generational convergence for historically unequal groups. In the United States, unfortunately, low-income and minority households are disproportionately segregated into neighborhoods characterized by low levels of economic resources and lower opportunities, such as low-quality schools and higher crime rates. Thus, recent policy debates have focused on how we, as a society, can better design various housing policies to effectively improve low-income households' access to higher-quality neighborhoods and reduce residential segregation.

This dissertation documents such pervasive patterns of residential segregation haunting the American housing market and examines the effectiveness of the rental voucher program, the largest federally run housing subsidy program in the U.S., that improves access for low-income families to live in higher-rent neighborhoods. Chapter 2, coauthored with Patrick Bayer and Kerwin Kofi Charles, first shows the extensive degree of residential segregation prevalent across major U.S. metropolitan areas. We find that Black and white households with identical incomes live in neighborhoods characterized by vastly different economic resources. We then discuss the potential explanatory mechanisms for neighborhood inequality, including decentralized racial sorting, discrimination in the housing market, and racial differences in wealth and home ownership.

Chapter 3 studies the equilibrium effect of improving low-income and minority households' access to high-rent, high-opportunity neighborhoods. I leverage a re-design of the rental voucher program, named the Small Area Fair Market Rents (SAFMR), that increased subsidies given to voucher families living in high-rent neighborhoods. While this policy incentivized them to take their vouchers to higher-rent neighborhoods than before, the reshuffling of the voucher households brought about changes in the residential equilibrium. I find that it created a more polarized rental market: rents rose in high-rent areas but declined in low-rent areas. However, it reduced income and racial stratification across neighborhoods, fostering a more egalitarian residential equilibrium. This chapter highlights the potential spillover effects on the residential equilibrium of housing policies that successfully relocate a significant mass of low-income households from high-poverty areas to high-opportunity areas.

Chapter 4 assesses the welfare effects of SAFMR on the unsubsidized part of households as the residential equilibrium has changed as documented in Chapter 3. I find that while high-income non-voucher households experienced a modicum of welfare loss due to increased living costs in high-rent neighborhoods, low-income counterparts benefited from reduced rents in low-rent neighborhoods. This result shows that SAFMR was much more progressive than initially thought because it not only increased access of voucher households to high-rent neighborhoods but also indirectly helped the unsubsidized part of low-income households to have more affordable homes in low-rent neighborhoods. I also find that, compared to the traditional design, the SAFMR allows a more equitable implementation of the voucher program by spreading the welfare incidence more evenly across the income distribution within the metropolitan area. This chapter illustrates the broader implications of housing vouchers, underscoring the need to balance affordable housing, societal integration, and overall welfare.