Do Supply Restrictions Raise the Value of Urban Land? The (Neglected) Role of Production Externalities

49 Pages Posted: 26 Sep 2013

See all articles by Satyajit Chatterjee

Satyajit Chatterjee

Federal Reserve Bank of Philadelphia

Burcu Eyigungor

Federal Reserve Bank of Philadelphia

Date Written: September 24, 2013

Abstract

Supersedes Working Paper 12-25.

Restriction on the supply of new urban land is commonly thought to raise the value of existing urban land. Our paper questions this view. We develop a tractable production-externality-based circular city model in which firms and workers choose locations and intensity of land use. Consistent with evidence, the model implies exponentially decaying density and price gradients. For plausible parameter values, an increase in the demand for urban land can lead to a smaller increase in urban rents in cities that cannot expand physically because they are less able to exploit the positive external effect of greater employment density.

Keywords: Land use, density gradients, agglomeration economies, commuting costs

JEL Classification: E10, R00

Suggested Citation

Chatterjee, Satyajit and Eyigungor, Burcu, Do Supply Restrictions Raise the Value of Urban Land? The (Neglected) Role of Production Externalities (September 24, 2013). FRB of Philadelphia Working Paper No. 13-37. Available at SSRN: https://ssrn.com/abstract=2330447 or http://dx.doi.org/10.2139/ssrn.2330447

Satyajit Chatterjee (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3861 (Phone)
215-574-4364 (Fax)

HOME PAGE: http://sites.google.com/site/chatterjeesatyajit/home

Burcu Eyigungor

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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