Assessing the Compensating Differentials Approach
Real estate prices provide a direct report card on the evolution of urban quality of life. The strength of this approach to ranking cities is that it is based on what economists call revealed preference. From collectable market data, it is possible to learn about the actual trade-offs that urbanites are willing to make between market consumption and nonmarket local public goods, such as climate and pollution. But this approach also has limitations. For one, real estate prices reflect not only...
Water Consumption
While all major U.S. cities are sprawling, the greatest growth has taken place in warmer, arid areas, such as Las Vegas and Phoenix. One result has been a sharp increase in water demand relative to supply. Yet water prices rarely reflect this growing scarcity. A recent study of prices at 1,980 water supply systems across the United States found no evidence that an area's climate was an important factor in determining water prices in the early 1990s.38 Intuitively, this means that residents of...
Fighting Sprawl with Smart Growth
Some cities have sought to fight sprawl and its environmental consequences by implementing smart growth policies. Kent Portney has summarized these efforts by constructing green policy indicators covering thirty areas.44 These indicators measure, for example, whether cities redevelop brownfields, use zoning to delineate environmentally sensitive growth areas, provide tax incentives for environmentally friendly transportation, limit downtown parking spaces, and purchase or lease alternatively...
Nonmarket Forces Governments Role
Like green technologies, government action also helps explain both the shape and location of the EKC. Some economists argue that as income rises, the typical voter becomes more willing to support spending on regulation.22 A related hypothesis suggests that a nation is more likely to enact environmental regulation when its economy is growing and income inequality is falling. Under these conditions voters are more likely to agree on policy priorities, and the government has the resources...
Conclusion
Over the past thirty years, national and local regulation has played a major role in improving urban environmental quality in U.S. cities. In addition to voter support, such measures often require significant resources, which helps explain the shape of the urban EKC. Effective regulation is costly. Most firms and individuals will only alter their behavior if they believe that there are credible probabilities of being caught ille 60. Greenstone and Gallagher 2005 examine home price growth in the...
Two Examples of the Urban EKC
Noise pollution is a leading example of the urban EKC. Almost all forms of urban economic activity generate noise, and as the scale of such activity increases, noise pollution rises. In a growing city, there will be more driving as motorcycles and cars replace bicycles, more manufacturing, and more construction activity. If antinoise laws are not enforced, then noise levels will grow. Eventually, however, richer consumers are likely to upgrade the quality of the products they buy or press...
