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The Economic Approach to Cities


Edward L. Glaeser


Harvard University - John F. Kennedy School of Government, Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

January 2008

Harvard Institute of Economic Research Discussion Paper No. 2149
KSG Working Paper No. RWP08-003

Abstract:     
The economic approach to cities relies on a spatial equilibrium for workers, employers and builders. The worker's equilibrium implies that positive attributes in one location, like access to downtown or high wages, are offset by negative attributes, like high housing prices. The employer's equilibrium requires that high wages be offset by a high level of productivity, perhaps due to easy access to customers or suppliers. The search for the sources of productivity differences that can justify high wages is the basis for the study of agglomeration economies which has been a significant branch of urban economics in the past 20 years. The builder's equilibrium condition pushes us to understand the causes of supply differences across space that can explain why some places have abundant construction and low prices while others have little construction and high prices. Since the economic theory of cities emphasizes a search for exogenous causes of endogenous outcomes like local wages, housing prices and city growth, it is unsurprising that the economic empirics on cities have increasingly focused on the quest for exogenous sources of variation. The economic approach to urban policy emphasizes the need to focus on people, rather than places, as the ultimate objects of policy concern and the need for policy to anticipate the mobility of people and firms.

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Date posted: January 3, 2008  

Suggested Citation

Glaeser, Edward L., The Economic Approach to Cities (January 2008). Harvard Institute of Economic Research Discussion Paper No. 2149; KSG Working Paper No. RWP08-003. Available at SSRN: http://ssrn.com/abstract=1080294 or http://dx.doi.org/10.2139/ssrn.1080294

Contact Information

Edward L. Glaeser (Contact Author)
Harvard University - John F. Kennedy School of Government, Department of Economics ( email )
Littauer Center
Room 315A
Cambridge, MA 02138
United States
617-496-2150 (Phone)
617-496-1722 (Fax)
Brookings Institution
1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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