11 - A Computational Approach to the Study of Neighborhood Effects in General Equilibrium Urban Land Use Models

Abstract

This chapter presents a computational approach to the study of neighborhood effects in general equilibrium urban land use models. Even in the absence of neighborhood effects, general equilibrium urban land use models are analytically intractable unless drastic simplifying assumptions are made. Including endogenous neighborhood effects aggravates this difficulty, necessitating solution via numerical techniques. Within any given neighborhood, the associated amenities or disamenities can directly affect both production activities that locate there and households that reside there. Thereafter, excess demand vectors for endogenously priced goods, conditional on vectors of neighborhood effects, may be derived using the optimization requirements of equilibrium. These excess demand vectors should be augmented to insure that, in equilibrium, the conditional decisions are made on the basis of correct expectations, that is, the assumed and actual neighborhood effects are the same.