Rethinking Detroit

47 Pages Posted: 13 Feb 2017

See all articles by Raymond E. Owens

Raymond E. Owens

Federal Reserve Bank of Richmond

Esteban Rossi-Hansberg

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Pierre-Daniel G. Sarte

Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: February 2017

Abstract

We study the urban structure of the City of Detroit. Following several decades of decline, the city's current urban structure is clearly not optimal for its size, with a business district immediately surrounded by a ring of largely vacant neighborhoods. We propose a model with residential externalities that features multiple equilibria at the neighborhood level. In particular, developing a residential area requires the coordination of developers and residents, without which it may remain vacant even if its fundamentals are sound. We embed this mechanism in a quantitative spatial economics model and use it to rationalize current city allocations. We then use the model to examine existing strategic visions to revitalize Detroit. We also explore alternative plans that rely on development guarantees, and find that they could result in greater population growth and land price appreciation than existing plans. The widespread effects of these policies underscore the importance of using a general equilibrium framework to evaluate policy proposals.

Suggested Citation

Owens, Raymond E. and Rossi-Hansberg, Esteban Alejandro and Sarte, Pierre-Daniel, Rethinking Detroit (February 2017). NBER Working Paper No. w23146. Available at SSRN: https://ssrn.com/abstract=2915973

Raymond E. Owens (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Esteban Alejandro Rossi-Hansberg

Princeton University - Department of Economics ( email )

Princeton, NJ
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Pierre-Daniel Sarte

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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