Urban Change in the United States and Western Europe: Comparative Analysis and Policy.

• Author: Frey, Donald E.

This volume's twenty papers are the product of a 1990 conference in Bellagio, Italy, on post-war urban trends in Western Europe and the United States. An editor's overview by Summers concludes that both American and European researchers document broadly similar trends of urban decentralization and deconcentration, although the patterns vary by nation. Both find significant governmental impacts on metropolitan areas, although policies vary significantly from one side of the Atlantic to the other. And both Americans and Europeans observe disequilibrium, despite American "neoclassical traditions of equilibrium." Inasmuch as the papers are relatively self contained and do not interact, this review will concentrate on the American contributions. The papers fall into four rough categories: theory, empirical hypothesis tests, policy, and descriptive statistics.

In a primarily theoretical paper, Edwin Mills models the size of metropolitan areas as determined by transactions costs, which are portrayed as a function of size of the metropolitan area itself. Mills then concludes that reducing transactions costs (e.g., through improved transportation) is about the only effective local strategy for economic development (other than reducing what he sees as local overregulation of business). Mills asserts that "[n]o study has ever shown that development incentives . . . have resulted in stimulation of employment" [p. 202]. He attacks (and rightly so) the misuse of the local-economy multiplier to justify public subsidies of private offices and like projects; any reasonable estimate of the local-area multiplier is bound to be small. However, he also dismisses the multiplier concept itself, apparently on the strength of critiques of the Keynesian macroeconomic multiplier. Yet, standard critiques of the macromultiplier are often irrelevant to a local economy; for example, even if "crowding out" reduced the macromultiplier to zero, small cities with expanding demand can always acquire liquidity from national capital markets at the going interest rate.

A chapter by Joseph Gyourko and Joseph Tracy is one of the few statistical chapters that tests a hypothesis. Specifically, they test the hypothesis that local fiscal conditions produce compensating differentials in wages and housing prices - just as do climate and other amenities. Their results generally show that intercity differences in tax rates and public services do produce differentials of the correct sign...