Quality of the Business Environment Versus Quality of Life in a Dynamic Model of Urban Composition and Growth Do Firms and Households Like the Same Cities?

42 Pages Posted: 12 Nov 2001

See all articles by Stuart S. Rosenthal

Stuart S. Rosenthal

Syracuse University - Department of Economics

Stuart A. Gabriel

University of California, Los Angeles - Anderson School of Management

Date Written: October 20, 2000

Abstract

Appropriately constructed measures of the quality of life and the quality of the business environment should be important determinants of the growth and composition of population across urban areas. This paper examines that question by extending theoretical measures of household quality of life to construct the first ever measure of the quality of the business environment ? the value that firms place on the basket of amenities in a metropolitan area. An annual panel of quality of life and quality of business environment values for 37 cities in the United States is then constructed for the 1977 to 1995 period.

A key finding is that many cities attractive to firms are unattractive to households, and vice versa. In addition, estimates from an error correction model (ECM) indicate that improvements in the quality of the business environment and quality of life have strong positive effects on equilibrium city shares of workers, but negative effects on equilibrium city shares of retirees. The former result reflects outward shifts of labor supply and demand in response to improved amenities. The latter is because retirees avoid high land rents that arise from the in-migration of firms and workers. Moreover, following a shock that creates migratory pressures in the system of cities, worker-population shares converge back to long run equilibrium in 8-1/2 years, while retiree-population shares converge back in 6 years. The longer response time of the worker population likely reflects the cost of adjusting the spatial distribution of industry-specific human and physical capital in a coordinated manner.

Suggested Citation

Rosenthal, Stuart S. and Gabriel, Stuart A., Quality of the Business Environment Versus Quality of Life in a Dynamic Model of Urban Composition and Growth Do Firms and Households Like the Same Cities? (October 20, 2000). USC Finance & Business Econ. Working Paper No. 01-23. Available at SSRN: https://ssrn.com/abstract=286814 or http://dx.doi.org/10.2139/ssrn.286814

Stuart S. Rosenthal

Syracuse University - Department of Economics ( email )

426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-3809 (Phone)

Stuart A. Gabriel (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-2922 (Phone)
310-206-5455 (Fax)

HOME PAGE: http://www.anderson.ucla.edu

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