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  5. Urban Economics
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Urban Economics

Paper Session

Saturday, Jan. 3, 2026 2:30 PM - 4:30 PM (EST)

Loews Philadelphia Hotel, Washington A
Hosted By: American Real Estate and Urban Economics Association & American Economic Association
  • Chair: Edward Glaeser, Harvard University

Urban Costs Around the World

Jordan Rosenthal-Kay
,
University of Chicago

Abstract

Cities are engines of economic development, but urban costs limit the world economy's ability to reap the benefits of urbanization. Urban costs depend on commuting costs and the city's capacity to expand up and out. These three dimensions of cities' urban costs combine to form a city's urban cost elasticity, which measures how urban costs scale with population size. Using a structural model and geospatial data on over 10,000 cities, I measure urban costs globally. Cities in developing countries grow by building out, rather than up, even though residents face higher transportation costs. Compared to cities in the developed world, developing nations' cities have urban cost elasticities that are 35% higher. Embedding my estimates of urban costs in a quantitative spatial model featuring a system of cities and rural-to-urban migration, I find that high urban costs have large implications. Lowering urban cost elasticities to the average level observed in the United States would raise welfare in developing nations by 66%, six times the gains in the rich world. To examine how policy might achieve these gains, I focus on urban road paving, which I find to be a cost-effective way to reduce urban costs in developing economies.

Dynamic Urban Economics

Brian Greaney
,
University of Washington
Andrii Parkhomenko
,
University of Southern California
Stijn Van Nieuwerburgh
,
Columbia University

Abstract

We develop a dynamic urban model combining features of quantitative spatial and macro-housing models. It includes multiple locations, forward-looking households, commuting, costly migration, uninsurable income risk, housing tenure choice, and housing frictions. The model operates in continuous time, with shocks and choices occurring at discrete intervals. This "mixed time" approach enables efficient computation of steady-state equilibria and transition dynamics, even with thousands of location pairs. Using a model of the San Francisco Bay Area, we show how forward-looking behavior, spatial frictions, and transition dynamics reshape estimated effects of spatially heterogeneous shocks and policies, traditionally studied with static models.

Location Choice and the Marginal Utility of Consumption

Md Moshi Ul Alam
,
University of Wisconsin-Madison
Morris Davis
,
University of Wisconsin-Madison
Jesse Gregory
,
University of Wisconsin-Madison

Abstract

We address a fundamental identification challenge in optimal place-based redistribution policy design: characterizing how marginal utility of consumption (MUC) varies across locations. We implement a nationally representative novel survey eliciting location-specific MUC by asking respondents to evaluate versions of themselves across different potential locations. Our findings reveal that the average MUC at the city level is weakly but positively correlated with average local income. Furthermore, using exogenously varied location-specific income, our survey elicits direct measures of location-specific MUC. The patterns in the data reject the common specification in location-choice models that consumption utility is additively separable from idiosyncratic location attachment shocks. We develop a structural model with imperfect substitutability between consumption and the idiosyncratic shocks to explain the empirical patterns. We find that optimal policy is substantially more nuanced than a simple redistribution from high-wage to low-wage locations.

Social Ties and Residential Choice: Micro Evidence and Equilibrium Implications

Martin Koenen
,
Harvard University
Drew Johnston
,
Meta

Abstract

Why don’t more people move to places where they can earn higher incomes? We use individual-level data from Facebook to find that social ties play a crucial role in explaining this puzzle: social ties are concentrated locally and shape migration decisions. On average, individuals live within 100 miles of nearly 80% of their friends, with less-educated individuals having even more concentrated social networks. To establish a causal link between the location of one’s friends and migration, we exploit plausibly exogenous variation in the timing of friends’ moves around individuals’ college graduation. Having one more friend in a given commuting zone at the time of graduation increases one’s likelihood of living there by 0.3 percentage points, which is comparable in magnitude to the effect of a $470 increase in annual wages. We incorporate these findings into a spatial equilibrium model and show that the magnitude of social network effects can explain why people stay in poorer places and why less-educated people are much less responsive to economic shocks. Overall, this study shows that social networks play a first-order role — as important or more important than canonical economic factors such as wages and rents — in determining residential choice at the individual and aggregate level.

Discussant(s)
Lu Han
,
University of Wisconsin-Madison
Gilles Duranton
,
University of Pennsylvania
Jonathan I. Dingel
,
Columbia University
Sophie Calder-Wang
,
University of Pennsylvania
JEL Classifications
  • R2 - Household Analysis
  • R5 - Regional Government Analysis