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Urban Economics


Author: Arthur O'Sullivan

Publisher: McGraw-Hill


Publish Date: October 26, 2011

ISBN-10: 73511471

Pages: 528

File Type: PDF

Language: English

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Book Preface

This book is on urban economics, the discipline that lies at the intersection of geography and economics. Urban economics explores the location decisions of utility- maximizing households and profi t-maximizing fi rms, and it shows how these decisions cause the formation of cities of different size and shape. Part I of the book explains why cities exist and what causes them to grow or shrink. Part II examines the market forces that shape cities and the role of government in determining landuse patterns. Part III looks at the urban transportation system, exploring the pricing and design of public transit systems and the externalities associated with automobile use (congestion, environmental damage, collisions). Part IV explores the economics of urban education and crime, two factors that play key roles in household location decisions. Part V explains the unique features of the housing market and examines the effects of government housing policies. The fi nal part of the book explains the rationale for our fragmented system of local government and explores the responses of local governments to intergovernmental grants and the responses of taxpayers to local taxes.

The text is designed for use in undergraduate courses in urban economics and urban affairs. It could also be used for graduate courses in urban planning, public policy, and public administration. All of the economic concepts used in the book are covered in the typical intermediate microeconomics course, so students who have completed such a course will be able to move through the book at a rapid pace. For students whose exposure to microeconomics is limited to an introductory course— or who could benefi t from a review of the concepts covered in an intermediate micro economics course—I have provided an appendix (“Tools of Microeconomics”) that covers the key concepts.


The eighth edition improves on the previous edition in two ways. First, I’ve rewritten Chapter 11 (Urban Transit) to incorporate the most recent developments in economic theory, empirical results, and practical experience with transit systems. Included in the revised chapter is a thorough analysis of the rationale for transit subsidies and a discussion of the size of the socially effi cient subsidy. In addition, the chapter has a full accounting of the relative costs of light rail versus buses.

The second improvement is a new chapter on education (Chapter 12). This chapter uses the education production function as a framework to explore the economics of K–12 education. The chapter identifi es the key inputs to the production proces —teachers, the home environment, and classroom peers. One of the insights from the production function is that teacher productivity varies signifi cantly across teachers. For example, if we replace an average teacher with an aboveaverage teacher for one year, the benefi t is roughly $210,000. At the other end of the productivity scale, if we were to replace the bottom 8 percent of teachers with average teachers, aggregate earnings in the national economy would increase by roughly $112 trillion. The education chapter also looks at spending inequalities across schools and evaluates the effects of intergovernmental grants on spending and achievement inequalities.

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