IDEAS home Printed from https://ideas.repec.org/p/hal/pseptp/halshs-01938356.html
   My bibliography  Save this paper

The Cost of Agglomeration: Land Prices in Cities

Author

Listed:
  • Pierre-Philippe Combes

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

  • Gilles Duranton

    (The Wharton School - University of Pennsylvania)

  • Laurent Gobillon

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

We develop a new methodology to estimate the elasticity of urban costs with respect to city population using French house and land price data. After handling a number of estimation concerns, we find that the elasticity of urban costs increases with city population with an estimate of about 0.03 for an urban area with 100,000 inhabitants to 0.08 for an urban area of the size of Paris. Our approach also yields a number of intermediate outputs of independent interest such as the share of housing in expenditure, the elasticity of unit house and land prices with respect to city population, and within-city distance gradients for house and land prices.

Suggested Citation

  • Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2019. "The Cost of Agglomeration: Land Prices in Cities," PSE-Ecole d'économie de Paris (Postprint) halshs-01938356, HAL.
    • Handle: RePEc:hal:pseptp:halshs-01938356
    DOI: 10.1093/restud/rdy063
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01938356v1
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-01938356v1/document
    Download Restriction: no
    File URL: https://libkey.io/10.1093/restud/rdy063?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 247-348, Elsevier.
    2. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    3. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon & Sébastien Roux, 2010. "Estimating Agglomeration Economies with History, Geology, and Worker Effects," NBER Chapters, in: Agglomeration Economics, pages 15-66, National Bureau of Economic Research, Inc.
    4. Gilles Duranton, 2007. "From cities to productivity and growth in developing countries," Working Papers tecipa-306, University of Toronto, Department of Economics.
    5. Nathaniel Baum-Snow & Ronni Pavan, 2012. "Understanding the City Size Wage Gap," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 88-127.
    6. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," Journal of Political Economy, University of Chicago Press, vol. 129(10), pages 2766-2816.
    7. Paul Cheshire & Stefano Magrini, 2006. "Population growth in European cities: Weather matters - but only nationally," Regional Studies, Taylor & Francis Journals, vol. 40(1), pages 23-37.
    8. Alan B. Krueger & Daniel Kahneman & David Schkade & Norbert Schwarz & Arthur A. Stone, 2009. "National Time Accounting: The Currency of Life," NBER Chapters, in: Measuring the Subjective Well-Being of Nations: National Accounts of Time Use and Well-Being, pages 9-86, National Bureau of Economic Research, Inc.
    9. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2011. "The identification of agglomeration economies," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 253-266, March.
    10. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
    11. Rappaport, Jordan, 2007. "Moving to nice weather," Regional Science and Urban Economics, Elsevier, vol. 37(3), pages 375-398, May.
    12. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," Journal of Political Economy, University of Chicago Press, vol. 129(10), pages 2766-2816.
    13. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2008. "Spatial wage disparities: Sorting matters!," Journal of Urban Economics, Elsevier, vol. 63(2), pages 723-742, March.
    14. Diego Puga, 2010. "The Magnitude And Causes Of Agglomeration Economies," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 203-219, February.
    15. Krueger, Alan B. (ed.), 2009. "Measuring the Subjective Well-Being of Nations," National Bureau of Economic Research Books, University of Chicago Press, number 9780226454566.
    16. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 763-789.
    17. Patrick Kline & Enrico Moretti, 2014. "People, Places, and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 629-662, August.
    18. Duranton, Gilles & Puga, Diego, 2005. "From sectoral to functional urban specialisation," Journal of Urban Economics, Elsevier, vol. 57(2), pages 343-370, March.
    19. David Card & Alan B. Krueger, 1992. "School Quality and Black-White Relative Earnings: A Direct Assessment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 151-200.
    20. Jessie Handbury & David E. Weinstein, 2015. "Goods Prices and Availability in Cities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 258-296.
    21. Davis, Morris A. & Heathcote, Jonathan, 2007. "The price and quantity of residential land in the United States," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2595-2620, November.
    22. Pierre‐Philippe Combes & Gilles Duranton & Laurent Gobillon & Diego Puga & Sébastien Roux, 2012. "The Productivity Advantages of Large Cities: Distinguishing Agglomeration From Firm Selection," Econometrica, Econometric Society, vol. 80(6), pages 2543-2594, November.
    23. Hoyt Bleakley & Jeffrey Lin, 2012. "Portage and Path Dependence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 587-644.
    24. Duranton, Gilles & Puga, Diego, 2014. "The Growth of Cities," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 5, pages 781-853, Elsevier.
    25. Henderson, Vernon, 2002. "Urban primacy, external costs, and quality of life," Resource and Energy Economics, Elsevier, vol. 24(1-2), pages 95-106, February.
    26. France Guérin-Pace & Denise Pumain, 1990. "150 ans de croissance urbaine," Économie et Statistique, Programme National Persée, vol. 230(1), pages 5-16.
    27. Alan B. Krueger, 2009. "Measuring the Subjective Well-Being of Nations: National Accounts of Time Use and Well-Being," NBER Books, National Bureau of Economic Research, Inc, number krue08-1.
    28. David Albouy, 2016. "What Are Cities Worth? Land Rents, Local Productivity, and the Total Value of Amenities," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 477-487, July.
    29. Kristian Behrens & Gilles Duranton & Frédéric Robert-Nicoud, 2014. "Productive Cities: Sorting, Selection, and Agglomeration," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 507-553.
    30. Chun-Chung Au & J. Vernon Henderson, 2006. "Are Chinese Cities Too Small?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 549-576.
    31. Morris A. Davis & Francois Ortalo-Magne, 2011. "Household Expenditures, Wages, Rents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 248-261, April.
    32. Richardson, Harry W, 1987. "The Costs of Urbanization: A Four-Country Comparison," Economic Development and Cultural Change, University of Chicago Press, vol. 35(3), pages 561-580, April.
    33. Gilles Duranton, 2008. "Viewpoint: From cities to productivity and growth in developing countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(3), pages 689-736, August.
    34. Glaeser, Edward L. & Kahn, Matthew E. & Rappaport, Jordan, 2008. "Why do the poor live in cities The role of public transportation," Journal of Urban Economics, Elsevier, vol. 63(1), pages 1-24, January.
    35. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-656, September.
    36. Fujita,Masahisa, 1991. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521396455, September.
    37. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, November.
    38. David Albouy, 2009. "The Unequal Geographic Burden of Federal Taxation," Journal of Political Economy, University of Chicago Press, vol. 117(4), pages 635-667, August.
    39. repec:hal:pseose:hal-00812695 is not listed on IDEAS
    40. White, Michelle J., 1999. "Urban areas with decentralized employment: Theory and empirical work," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 36, pages 1375-1412, Elsevier.
    41. Duranton, Gilles & Puga, Diego, 2015. "Urban Land Use," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 467-560, Elsevier.
    42. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, number 9780521844413, October.
    43. Davis, Morris A. & Palumbo, Michael G., 2008. "The price of residential land in large US cities," Journal of Urban Economics, Elsevier, vol. 63(1), pages 352-384, January.
    44. Krueger, Alan B. (ed.), 2009. "Measuring the Subjective Well-Being of Nations," University of Chicago Press Economics Books, University of Chicago Press, number 9780226454573, October.
    45. Gilles Duranton & J. V. Henderson & William C. Strange (ed.), 2015. "Handbook of Regional and Urban Economics," Handbook of Regional and Urban Economics, Elsevier, edition 1, volume 5, number 5.
    46. Fujita, Masahisa & Ogawa, Hideaki, 1982. "Multiple equilibria and structural transition of non-monocentric urban configurations," Regional Science and Urban Economics, Elsevier, vol. 12(2), pages 161-196, May.
    47. Thomas, Vinod, 1980. "Spatial differences in the cost of living," Journal of Urban Economics, Elsevier, vol. 8(1), pages 108-122, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2012. "The Costs of Agglomeration: Land Prices in French Cities," IZA Discussion Papers 7027, Institute of Labor Economics (IZA).
    2. repec:hal:spmain:info:hdl:2441/6bmhhi42888fj8hn1okddaqsab is not listed on IDEAS
    3. repec:spo:wpmain:info:hdl:2441/6bmhhi42888fj8hn1okddaqsab is not listed on IDEAS
    4. repec:spo:wpmain:info:hdl:2441/68snpauh718coq747l6ekv80cd is not listed on IDEAS
    5. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2019. "The Costs of Agglomeration: House and Land Prices in French Cities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(4), pages 1556-1589.
    6. repec:hal:spmain:info:hdl:2441/68snpauh718coq747l6ekv80cd is not listed on IDEAS
    7. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2012. "The Cost of Agglomeration: Land Prices in Cities," Working Papers hal-03461075, HAL.
    8. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 247-348, Elsevier.
    9. Duranton, Gilles & Puga, Diego, 2014. "The Growth of Cities," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 5, pages 781-853, Elsevier.
    10. Gilles Duranton & Diego Puga, 2023. "Urban Growth and Its Aggregate Implications," Econometrica, Econometric Society, vol. 91(6), pages 2219-2259, November.
    11. Behrens, Kristian & Robert-Nicoud, Frédéric, 2015. "Agglomeration Theory with Heterogeneous Agents," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 171-245, Elsevier.
    12. Stef Proost & Jacques-François Thisse, 2019. "What Can Be Learned from Spatial Economics?," Journal of Economic Literature, American Economic Association, vol. 57(3), pages 575-643, September.
    13. Gilles Duranton & Diego Puga, 2020. "The Economics of Urban Density," Journal of Economic Perspectives, American Economic Association, vol. 34(3), pages 3-26, Summer.
    14. Thisse, Jacques-François & Proost, Stef, 2015. "Skilled Cities, Regional Disparities, and Efficient Transport: The state of the art and a research agenda," CEPR Discussion Papers 10790, C.E.P.R. Discussion Papers.
    15. Albouy, David & Behrens, Kristian & Robert-Nicoud, Frédéric & Seegert, Nathan, 2019. "The optimal distribution of population across cities," Journal of Urban Economics, Elsevier, vol. 110(C), pages 102-113.
    16. Desmet, Klaus & Henderson, J. Vernon, 2015. "The Geography of Development Within Countries," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1457-1517, Elsevier.
    17. Diego Puga, 2017. "The changing distribution of firms and workers across cities," Development Working Papers 418, Centro Studi Luca d'Agliano, University of Milano.
    18. Duranton, Gilles & Puga, Diego, 2015. "Urban Land Use," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 467-560, Elsevier.
    19. Ahlfeldt, Gabriel M. & Pietrostefani, Elisabetta, 2019. "The economic effects of density: A synthesis," Journal of Urban Economics, Elsevier, vol. 111(C), pages 93-107.
    20. Gilles Duranton & William R. Kerr, 2015. "The Logic of Agglomeration," NBER Working Papers 21452, National Bureau of Economic Research, Inc.
    21. Carl Gaigné & Hans R.A. Koster & Fabien Moizeau & Jacques-François Thisse, 2017. "Amenities and the Social Structure of Cities," Economics Working Paper Archive (University of Rennes & University of Caen) 2017-07, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    22. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent & Roux, Sébastien, 2012. "Sorting and local wage and skill distributions in France," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 913-930.
    23. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2011. "The identification of agglomeration economies," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 253-266, March.
    24. Carl Gaigne & Hans R.A. Koster & Fabien Moizeau & Jacques-François Thisse, 2020. "Income Sorting Across Space: The Role of Amenities and Commuting Costs," Working Papers SMART 20-06, INRAE UMR SMART.

    More about this item

    Keywords

    Urban costs; House prices; Land prices; Land use; Agglomeration;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:pseptp:halshs-01938356. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Caroline Bauer (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.