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Abstract:
We revisit and test Salop and Stiglitz (1982) Theory of Sales. Equilibrium predictions are that higher consumer storage costs lead to: (1) higher average prices, (2) fewer promotions, and (3) shallower promotions. Empirical estimates of storage cost are developed for approximately 1,000 households using the American Housing Survey (1989), United States Census (1990), and Stanford Market Basket Database (1991-1993). A test of the key assumption finds consumers with higher storage costs shop more often and purchase smaller quantities per visit; moreover, all three equilibrium predictions are supported. The estimated quantitative effects on shopping frequency and prices are economically important.

Consumer Behavior, Retail Prices, Price Promotion, Storage Costs

Abstract:
How important are agglomeration economies for the location of foreign manufacturing plants? We investigate this question by combining innovations from previous studies and by taking advantage of a quasi-experimental setting: the political and economic transition in Romania. The recent, sudden and sustained influx of foreign investors into Romania provides an ideal setting to disentangle agglomeration economies from endowment effects. Using a county-level conditional logit set-up that controls for choice-specific fixed effects and endowment effects, we find that external economies from industry-specific foreign agglomeration and service agglomeration are important location determinants. Increases in the number of foreign plants and in service employment density by 10 percent make the average county 2.2 and 6.2 percent more likely to attract a new foreign investor. Local labor market conditions also matter. Our findings suggest that results are sensitive to the choice of geographical unit of observation and the inclusion of locational fixed effects.

Agglomeration economies, foreign direct investment, transition economies

Abstract:
This paper examines the role of local housing market conditions for social capital accumulation and neighborhood club good provision. A model of individual investment decisions predicts that in a setting with high property transaction costs (i) homeowners are more likely to invest in social capital than renters and (ii) the positive link between homeownership and social capital is stronger in more built-up neighborhoods with inelastic supply of new housing. In these neighborhoods homeowners are largely protected from inflows of newcomers that would dilute the net benefit from social capital in the longer run. Empirical evidence from the Social Capital Community Benchmark Survey confirms the model predictions. Instrumental variable estimates suggest that the effects are causal.

House price capitalization, social capital, homeownership, land and housing supply, neighborhood club goods

Abstract:
African Americans in the United States are considerably less likely to own their homes compared to Whites. Differences in household income and other socio-economic and demographic characteristics can only partially explain this gap and previous studies suggest that the 'unexplained' gap has increased over time. In this paper we use the Panel Study of Income Dynamics (PSID) intergenerational data, which provides information on household wealth, parental characteristics and macro-location choice. We find that African-American households are 6.5 percent less likely to own if only traditional explanatory variables are controlled for. However, the black-white homeownership gap disappears if differences in own and parental wealth and in the preferred macro-location type are accounted for.

Homeownership, housing tenure choice, location choice, wealth effects, intergenerational effects

Abstract:
While residents receive similar benefits from many local government programs, only about one-third of all households have children in public schools. We argue that capitalization of school spending into house prices can encourage residents to support spending on schools, even if the residents themselves will never have children in schools. We identify a proxy for the extent of capitalization�the supply of land available for new development�and show that in response to a plausibly exogenous spending shock in Massachusetts, towns with little undeveloped land have larger changes in house prices, but smaller changes in quantity (construction). Towns with little available land also spend more on schools. We extend these results using data from school districts in 46 states, showing that per pupil spending is positively related to the percentage of developed land. This positive correlation persists only in districts where the median resident is a homeowner and is stronger in districts with more elderly residents who do not use school services and have a shorter expected duration in their home. These findings support models in which house price capitalization encourages more efficient provision of public services and may explain why some elderly residents support school spending.

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Abstract:
Office space in Britain is the most expensive in the world and regulatory constraints are the obvious explanation. We estimate the 'regulatory tax' for 14 British office locations from 1961 to 2005. These are orders of magnitude greater than estimates for Manhattan condominiums or office space in continental Europe. Exploiting the panel data, we provide strong support for our hypothesis that the regulatory tax varies according to whether an area is controlled by business interests or residents. Our results imply that the cost of the 1990 change converting commercial property taxes from a local to a national basis - transparently removing any fiscal incentive to permit local development - exceeded any plausible rise in local property taxes.

Land use regulation, regulatory costs, business taxation, office markets

Abstract:
We model residential land use constraints as the outcome of a political economy game between owners of developed and owners of undeveloped land. Land use constraints benefit the former group (via increasing property prices) but hurt the latter (via increasing development costs). More desirable locations are more developed and, as a consequence of political economy forces, more regulated. Using an IV approach that directly follows from our model we find strong and robust support for our predictions. The data provide weak or no support for alternative hypotheses whereby regulations reflect the wishes of the majority of households or efficiency motives.

housing supply, land ownership, land use regulations, zoning

Abstract:
Office space in Britain is the most expensive in the world and regulatory constraints are the obvious explanation. We estimate the regulatory tax for 14 British and 8 continental European office locations. The values for Britain are substantially greater than elsewhere. Exploiting panel data, we provide strong support for our hypothesis that the regulatory tax varies according to local prosperity and its responsiveness to this depends on whether an area is controlled by business interests or residents. Our results also imply that the cost to office occupiers of the 1990 conversion of commercial property taxes from a local to a national basis exceeded any plausible rise in property taxes.