Rethinking Detroit

46 Pages Posted: 26 Mar 2017 Last revised: 8 Jun 2019

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: 2017-02-02

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 evaluate existing strategic visions to revitalize Detroit, and to design alternative plans that rely on 'development guarantees' to yield better outcomes. The widespread effects of these policies underscore the importance of using a general equilibrium framework to evaluate policy proposals.

Keywords: Urban Economics, Regional Economics

JEL Classification: F0, H0, R0

Suggested Citation

Owens, Raymond E. and Rossi-Hansberg, Esteban Alejandro and Sarte, Pierre-Daniel, Rethinking Detroit (2017-02-02). FRB Richmond Working Paper No. 17-4. Available at SSRN: https://ssrn.com/abstract=2939523

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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