Urban sprawl, car-related pollution and settlement structure: Insights from a two-region CGE model

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1 Urban sprawl, ar-relaed polluion and selemen sruure: Insighs from a wo-region CGE model Olivia Koland Wegener Cener for Climae and Global Change Universiy of Graz May 30, 2006 ABSTRACT: This paper develops a wo-region (wihin NUTS III) ompuable general equilibrium model of he ore-periphery ype, in whih residens are mobile beween an urban ore and is hinerland. Migraion is linked o shifs in polluion levels, aused by residens mobiliy paerns, and shifs in ongesion levels as well as regional differenes in housing pries and in he number of varieies of onsumpion goods. Building on New Eonomi Geography fores, he iniial equilibrium of uiliy equaliy aross onsumers seling in he wo regions, and working in eiher of he wo, is shoked by an exogenous hange in environmenal preferenes. As a firs sep, households do no migrae beween he wo regions. Then, in he longer run, hanged preferenes indue urban sprawl and affe selemen sruures via a irular linkage of spaial environmenal qualiy and mobiliy paerns. Thus, differenes in boh real inome and environmenal qualiy onsiue he welfare differenial for uiliy maximising households hoosing heir loaion of residene. The model is expanded o he empirial domain for he NUTS III region Graz (Ausria). Simulaion resuls are o explain he need for a spaial resruuring of urban areas in order o hange ar-relaed polluion, predominanly in he enre (PM 10 ). The analysis hus is o invesigae he poenial of ombining spaial planning and ranspor poliy for more susainable selemen sruures, wih insrumens inluding he resruuring of home onsruion subsidies, ordon priing, sri parking managemen or he improvemen of publi ranspor and yling infrasruure. KEYWORDS: urban sprawl, polluion, qualiy of life, selemen sruure, geographial eonomis, spaial planning, ranspor poliy JEL: R13, R14, R23, R41 ACKNOWLEDGEMENT: This researh is generously suppored by he Ausrian Naional Bank (Researh Gran 11502). The auhor also hanks Birgi Friedl, Chrisoph Shmid and Karl Seininger for inspiring disussions and helpful ommens.

2 1 INTRODUCTION Mobiliy aiviies urrenly ause derimenal environmenal and healh effes, predominanly in urban areas. On he one hand, he larges share of of ar mileage arues o enral regions. On he oher hand, urren sudies for urban areas idenify up o 60% of PM 10 onenraion levels as riggered by ranspor (Am der Seiermärkishen Landesregierung, 2003). As a onsequene, he spaial disribuion of onsumers hanges owards dispersed selemen sruures, semming mainly from new environmenal preferenes wihin he populaion. These hanging lifesyles imply an inreasing demand for housing spae, preferably near green bel, whereas iies ofen lak adequaely araive living spae (ÖROK, 2005). While he ulimae objeive of mobiliy is graning aess o goods and people, he spaial disribuion of eonomi aiviies and land use devoed o residene, work, shopping, leisure and produion affes he level of fossil fuel emissions. This explains how urren mobiliy paerns suh as urban sprawl reinfore he noxious effes of urban ranspor sysem haraerisis. We herefore sar from he assumpion ha urban sprawl is driven by a delining qualiy of life in iies whih is reinfored by he rising awareness of healh impas. A high degree of moorisaion and aessibiliy by road in he hinerland (e.g. Glaeser and Kahn, 2003) as well as a rising per apia inome (OECD, 2005) add o his rend. Saring from spaially differeniaed polluion levels, aused by residens mobiliy paerns, we look a heir ineraions wih oher fores involved suh as shifs in ongesion levels and housing pries. Thus, differenes in boh real inome and environmenal qualiy onsiue he welfare differenial for households hoosing heir loaion of residene. Obviously, here is a link beween selemen sruure and auomobile use, semming from a irular ausaliy in spaial environmenal qualiy and ommuing. This proess in urn is based on he fa ha ars inrease he possible disane beween residenes and jobs. In his regard, we invesigae how environmenal and healh effes in urban areas aused by ransporaion may be re-enfored by dispersed selemen sruures due o urban sprawl. Subsequenly, various poliy insrumens are analysed wih respe o urren environmenally unfavorable mobiliy and spaial rends. Thus, he explanaory fous of his paper is dynami spaial land use developmen, arising from he ineraion of onsumpion and produion aiviies a various loaions wih he respeive ranspor sysem haraerisis. The muual inerlinkage of ranspor and eonomi aiviy is a onlusion from he New Eonomi Geography lieraure (e.g. Fujia e al., 1999). Imporanly, spae maers no only by induing ranspor oss bu also by reduing polluion via spaial planning. To address ha issue, in a wo-region general equilibrium model of a iy enre and is hinerland, we show how he ineraions beween agglomeraion eonomies and passenger ranspor-relaed polluion affe he urban selemen 2

3 sruure. Sprawl is a regional-level phenomenon driven by individual hoies over loaion and land use whih are influened by populaion numbers, aess o infrasruure and real esae pries. In his approah, we invesigae how onsumers uiliy maximising residenial deisions aggregae up over ime and spae and hereby seer he spaial exension of he iy region. While sprawl an ake a variey of haraerisis (Burhell e al., 1998; Galser e al., 2001), for our purpose, however, urban sprawl is simplified o a proess ha hanges populaion numbers of a iy region and a periurban region owards he laer. While New Eonomi Geography has deal mainly wih firms loaion of produion, he presen paper fouses on onsumers housing deisions and he resuling selemen sruure. In his vein, he presen model unifies elemens of urban eonomis and New Eonomi Geography o sudy boh he developmen of iies, having spaial exen, and agglomeraion in he same spae. Alhough radiional urban models and NEG models deal wih he same spaial phenomena, hey differ in wo major respes he soure of dispersion fore and he range for poliial aion (Fujia and Mori, 2005): On he one hand urban eonomis models onsider land rens for urban housing [ ] as a dispersion fore. [I]n hese models [ ] he inra-iy and iner-iy spaes are no inegraed in he same loaion spae. [ ] On he oher hand, he models in he early sage of he NEG framework [ ] onsidered he immobile resoures (suh as land) as he soure of dispersion fore, and by doing so foused on he spaial disribuion of iies, while absraing from he inra-iy sruure [i.e., a iy onsiss of a (spaeless) poin in he loaion spae]. [U]rban eonomi models assign big roles o developers and iy governmens, while he NEG has been onerned wih self-organizaion in spae. Expressed differenly, in he presen approah, agglomeraion and dispersion fores address he eonomis of residenial hoie a wo levels. Firs, a he inerregional level, households fae a rade-off beween ranspor oss for spae and ameniy (see Fujia, 1989; Anas e al., 1998), based on he monoenri residenial model (Alonso, 1964). Seond, a he inraregional level, households searh for ameniies ha are provided by he neighbourhood of a given loaion. These inlude he openness of he landsape and environmenal qualiy as well as he proximiy o infrasruure and shops. Exising spaial models of polluion ofen presume a predeermined separaion beween polluers and polluees, usually ino a Cenral Business Disri and a residenial ring (e.g. Verhoef, 2002), aking he paern of land use beween housing and indusry as fixed (e.g. Tieenberg, 1974; Henderson, 1977, 1996; Hohman and 3

4 Ofek, 1979). The presen model, firs of all, inegraes spae due o he inheren irular ausaliy in environmenal qualiy and mobiliy paerns, reaing he paern of land use as endogenous. A seond imporan poin is ha polluion is aused by ommuing residens only. I.e. he ourring exernaliies are no of he produer-produer ype (e.g. Yoshino, 2004) or produer-onsumer ype (e.g. Verhoef, 2002; Arno e al., 2004; Marrewijk, 2005) ypially found in environmenally oriened models. On he onrary, hey represen onsumeronsumer exernaliies. An urban general equilibrium model wih polluion from ommuing was developed by Verhoef and Nijkamp (2003), bu, unlike he presen approah, in a monoenri iy seup wih all produion loaed in a spaeless Cenral Business Disri and in he absene of New Eonomi Geography fores. Thirdly, onrary o radiional urban models whih assume agglomeraion benefis as purely exernal o firms, we assume ha exernaliies emerge due o marke ineraions involving inernal eonomies of sale a firm level. This resuls in a monopolisially ompeiive marke sruure (Dixi and Sigliz, 1977). Thus, we invesigae how polluion ineras wih he oher fores whih have been idenified in he lieraure as affeing he paern of land use suh as reurns o sale in produion and produs variey as well as raffi ongesion. This, ogeher wih he irular linkage of ar-relaed polluion and housing sruures, is herefore he innovaive aspe of he presen paper. The lieraure on spaial (eonomi) aspes of environmenal qualiy is growing (Nijkamp, 1999), ye, ineraions beween exernaliies in an urban onex have only been invesigaed sine reenly (e.g. Verhoef e al., 1997). However, he presen approah explores suh ineraions as well as ineraions beween exernaliies and urban form. The paper is organised as follows: Seion 2 presens a wo-region equilibrium model, invesigaing he inerlinkage of region speifi job and housing sruures and mobiliy-relaed polluion. The nex seion is devoed o he numerial implemenaion of he heoreial approah and o simulaion resuls. Firs, he model is illusraed by daa for one Ausrian NUTS III region, omprising a woregion sruure of poliial disris. Seond, we shall briefly ouline he underaken CGE approah and disuss he esimaion of parameer values. Seion 3 hen demonsraes how various driving (enripeal and enrifugal) fores rigger inerregional migraion proesses. We shall hen go on o sugges a seleion of promising poliy measures, suiable for direing spaial impas on urban ranspor sruures, and disuss heir inegraion ino he model (seion 4). The final seion provides onlusions drawn from he heoreial and empirial analysis. 4

5 2 MODEL STRUCTURE We model a single-seor eonomy onsising of wo regions, an urban ore and is hinerland. Residens are mobile beween regions, hereby deermining a speifi selemen sruure. The fous is on urban sprawl, originaing foremos from he irular ausaliy in spaial qualiy of living and ommuing, whih refles he ineraion of onsumers loaion deision of residene and he oss of passenger ranspor. We assume no only inerregional bu also inraregional passenger ranspor oss, following Tabuhi (1998) based on heories by Alonso (1964), Henderson (1974) and Krugman (1991) 1. Moreover, wo ypes of exernaliies our: Firs, agglomeraion effes explain why mos produion is onenraed in ore he region. Seond, polluion exernaliies lead o spaial differeniaion in environmenal qualiy. Building on New Eonomi Geography, resuls are primarily driven by he ension beween enripeal (agglomeraion) fores enrifugal (dispersion) fores. In he presen onex, dispersion is undersood as urban sprawl and agglomeraion as he developmen of dense housing sruures in he enre. Consumpion We assume hree groups of onsumers eah living in one of wo regions. The represenaive onsumer of group 1 boh lives and works in region, he onsumer of group 2 lives in region (ore) and works in region h (hinerland), and he onsumer of group 3 boh lives and works in region h 2. Moreover, we assume ha only onsumers of group 2 an hoose o shop in eiher of he regions whereas groups 1 and 3 shop in he region hey live and work in. Consumers aross all groups are idenial. They have a preferene for variey of a single onsumpion good, i.e. differen varieies of ha good are imperfe subsiues in onsumpion. The represenaive household s level of uiliy is a funion of a quaniy omposie of onsumpion goods X, he housing good H, environmenal qualiy Q and road ongesion N, where solely he laer exhibis a negaive orrelaion o uiliy U = U ( X, H, Q, N) (1a) 1 In a Synhesis of Alonso and Krugman, Tabuhi (1998) presens a wo-iy sysem framework wih wo regions, eah onaining a enral business disri. He onludes ha while Alonso and Henderson assume zero inerregional (inerurban) ransporaion oss and posiive inraurban ommuing oss, Krugman assumes posiive inerregional ransporaion oss and ignores inraurban ommuing oss. 2 The group of onsumers who live in region bu work in region h is assumed o be negligibly small. 5

6 Le subsrip r refer o he respeive region, wih r =, h, hen he uiliy levels U r an be modelled by a nesed onsan elasiiy of subsiuion (CES) funion. The expendiure shares are given by α, β, γ and (1-α-β-γ); σ is he elasiiy of subsiuion in preferenes beween any pair of goods. U ( σ 1) / σ σ σ ( σ 1) / σ r = 1/ σ 1/ σ ( 1) / 1/ σ α X r β Hr γ Qr + (1 α 1/ 1/ 1/ 1 / σ σ σ σ ) β γ N ( σ 1)/ σ r σ /( σ 1) (1b) To model how uiliy inreases via onsumers love for variey, following Dixi and Sigliz (1977), le X r be a subuiliy funion defined over a range of varieies of onsumpion goods, where x r,i denoes he onsumpion of eah variey, and i = 1,...,n r is he number of varieies produed in eah region. Then he quaniy x omposie X r is defined by he CES funion (2), where σ = 1/(1 ρ) denoes he x, wih ρ, 0 < ρ < 1, elasiiy of subsiuion beween any pair of varieies { } i x j represening he inensiy of he preferene for variey. Thus, doubling indusry oupu means more han doubling (aggregae) uiliy gained from X. X r = i x X /( X X X σ σ 1) ( σ 1) / σ i 1,...,n, r r i = (2) The represenaive household maximizes equaion (1) and equaion (2) subje o he budge onsrain (3). Le Y represen he exogenous level of inome and p be he prie of he onsumpion good; le HC denoe housing oss and TC denoe ranspor oss, hen we have Y p x HC TC r = r i r i + r +,, r r i i = 1,...,n (3) Housing oss HC depend on he demand for housing good H and, in his vein, mainly involve real esae pries or renal harges. Transpor oss TC hinge on he number and disanes 3 of demanded ommuing and/or shopping ways as well as on mode hoie. Furhermore, ranspor oss involve ongesion oss suh as inreased gasoline onsumpion. On he oher hand, environmenal qualiy, supplied as publi good a one level for he enre and one for he hinerland eners he uiliy funion direly. In his 3 Disanes deermine he ype of way, i.e. if i is inerregional or inraregional, whih, in urn, depend on he onsumer group (1, 2 or 3) he respeive household belongs o. 6

7 maer, environmenal qualiy is influened by regionally differeniaed polluion due o ommuing, i.e. i is dereasing wih he level of loal emissions (see seion on polluion ). Thus, only par of he uiliy is resried by he budge onsrain (3). This maximisaion problem an be solved in wo seps: Firs, he represenaive household splis inome Y r beween goods X r, H r and CG r. Seond, eah x r,i is hosen suh ha oss of aaining he level of X, as deermined in he firs sep, are minimized. The maximisaion problem s lower-level sep is herefore an expendiure minimizaion problem r min p s.. X i r, i r = i x r, i x X /( X X X σ σ 1) ( σ 1) / σ, r i (4) Produion We assume a single seor produing a heerogeneous onsumpion good. Agglomeraion exernaliies emerge from he ineraion of eonomies of sale a he level of he individual firm, ransporaion oss (for goods) and faor mobiliy. Wih inernal eonomies we need o model an imperfely ompeiive marke sruure. We do so by following he Dixi-Sigliz (1977) model of monopolisi ompeiion. Agglomeraion effes arise hrough onsumers preferenes for heerogeneiy (love for variey) and firms requiremens for limied produive resoures. As for onsumers, he level of uiliy inreases no only wih he aggregae quaniy of varieies onsumed bu also wih he number of varieies, whih are available. The same applies o produers, sine he imporane of variey of inermediae inpus operaes in a parallel fashion. In his vein, final produion inreases by virue of sharing a wider variey of inermediae suppliers, wih foundaion is spelled ou expliily. Every firm has fixed oss in produion and a dereasing average os urve. Based on empirial daa for he iy of Graz and Graz hinerland, produion in eiher region involves differen marginal inpu requiremens m of labour and apial and differen fixed faor requiremens (F), independenly of he quaniy manufaured and assumed o omprise labour only: L = F + m x, where L is he labour required o produe any oupu x. Then, he produion of a quaniy x of any variey i in region r, wih share parameer δ and elasiiy of subsiuion σ P, involves x r, i ( σ P 1) / σ P ( σ P 1) / σ P σ P /(1 σ P ) ( δ K + (1 δ ) L ) = (5) 7

8 Thus, here are inreasing reurns in he produion of eah variey. This and he fa ha here is an unlimied number of varieies ha ould be produed, ogeher wih onsumers love for variey, imply ha eah firm produes jus one variey and no variey is produed by more han one firm. The profi-maximising prie for eah variey in eiher region is a fixed markup on marginal os. The markup is deermined by he prie elasiiy of demand, whih is onsan and equal o x σ = ε = 1/(1 ρ). Sine he number of varieies produed, in he base year, is higher in he enre, i.e. n nh, we assume a higher markup and a lower elasiiy of subsiuion, respeively, for region. Hene, inernal sale eonomies and agglomeraion exernaliies, aordingly, explain why mos produion is loaed in he enre region. This in urn implies a orresponding disribuion of jobs, sine forward and bakward linkages reae an inenive for workers o be lose o he produion of onsumer goods. I follows ha he size of a marke (or a region) and is labour fore L r deermine he variey of onsumpion goods offered o households and he diversiy of inpus available o firms. Thus, for he equilibrium number of firms, whih equals he number of varieies produed, we have n r / Lr > 0. The aggregae posiive relaion beween labour supply and produiviy is onsisen wih mos sruural models of agglomeraion benefis (Duranon and Puga, 2004). Environmenal qualiy and polluion We assume ha emissions are solely aused by passenger ranspor and ha differenes beween he wo regions in erms of ausing polluion are mainly driven by ommuing o work. Imporanly, emissions E are raised by pariulae maer eiher emied or re-irulaed by ranspor. We furher assume ha he daily ommuing disane is higher for he hinerland h han for he ore and ha he residens of region h, more speifially group 2 onsumers, onribue onsiderably o emissions in region. In his vein, i is equally imporan o know where polluans aumulae, no only where emissions are originally aused. To address his issue, we alulae he emissions of differen polluans for boh regions separaely. We firs alulae emissions per group of onsumers ( T ) 1 E = for group 1 (6a) 1 E g ( T ) 2 E = h for group 2 and (6b) 2 E g ( T ) 3 E = hh for group 3, (6) 3 E g where emissions from ommuing arise in a fixed proporion of unis driven. Polluion aused by group 2 (E 2 ) is he produ of emissions per average ommuing way from region h o region, T h (in unis driven), and he share of 8

9 onsumers in group 2 (g 2 ), wih g 1 + g 2 + g 3 = 1. The same applies for groups 1 (share g 1 ) and 3 (share g 3 ) 4. Imporanly, he speifi emissions per average ommuing way E( T ) < E( Th ) E( Thh ) diverge for he wo regions due o he differenes in he modal spli and he absolue disanes in passenger ranspor. Then, sine residens of group 2 onribue o emissions in he ore region, emissions per region are E E h = E 1 + α E 2 for he ore and (7) ( ) 2 = E α E for he hinerland, (8) wih 0 α 1. I follows ha differenes in emissions beween he wo regions anno be redued o differenes in ommuing disanes beween he wo regions. An imporan poin is ha people mainly ommue ino he ore region for work, no he oher way round. Moreover, he modal spli of ommuing is influened by he availabiliy of publi ranspor alernaives, wih a lower ar-dependeny in he ore han in he hinerland. The presen model gives emissions no only as an oupu bu has an impa on uiliy hrough he environmenal qualiy variable Q. Assuming ha emissions hus ause a disuiliy, environmenal qualiy is redued by polluion suh ha Q is defined as he level of green environmen and he amoun of spae offered, expressed by G, and is dereasing wih he level of loal emissions, Q = G λ E for he ore and (9a) Q h = G λ E for he hinerland (9b) h h h Adjusmen proesses and model soluion The eonomy is analysed for hree poins in ime: period -1, he base year, period hereafer and period +1, whih follows period wih a lag of some 15 years or more. In he iniial equilibrium of selemen disribuion, per person uiliy levels are equalized ( ) 1 ( U h ) 1 U for period -1 (10) = 4 The underlying assumpion for (6) is only one average ommuing way per onsumer and day, whih omprises he daily way o work and he proporionae way for shopping per day. However, his simplifying assumpion for (6b) does no hold if some group 2 onsumers shop in region and some in h. 9

10 suh ha he marginal household in eah region is indifferen wih respe o reselemen in he oher region. I.e., for he 3 onsumer groups, he uiliy maximising bundle of onsumpion and housing goods, environmenal qualiy and ongesion differs wih respe o he omponen-speifi onribuion o welfare. In pariular, we assume ha environmenal qualiy onribues more o welfare in region h han in. However, he expendiure share for housing is assumed o be equal for boh regions 5. Moreover, group 2 workers make up only for a small share of he enre labour fore, and wage per apia is assumed o be he same for boh regions in he base equilibrium. As a seond sep, an exogenous hange in environmenal preferenes leads o a new equilibrium 6. To address his issue, we model iy residens raised environmenal awareness by a deline in iy environmenal qualiy. In hin vein, environmenal qualiy onribues less o group 1 onsumers uiliy. As a onsequene, overall dispersion fores improve and per apia uiliy levels differ suh ha ( ) ( U h ) U < for period (11) leading o inerregional migraion. In his onex, he firs imporan assumpion is ha households adap slowly in heir housing ondiions, suh ha housing sruures in period +1 refle preferenes from quie some ime ago (15 years or more). I.e. in he shor erm (unil period ), no hange of loaion akes plae, while in he longer erm (unil period +1) migraion is possible. A seond imporan poin is o disinguish beween (i) migraion o he hinerland while remaining wihin he enre eonomi sphere and (ii) full migraion o he hinerland: (i) Due o he inreased imporane of environmenal onsideraions some ype 1 onsumers deide o reloae heir residene o he hinerland. However, hey ommue o he enre region o furher on benefi from boh adequae and araive urban job opporuniies. In his regard, urban sprawl arises as hanged proporions g of onsumers in groups 1 and 2 (ompare equaions 6a,b, and he explanaions below) ( g 1 ) ( g 1 ) + 1 and ( 2 ) ( g 2 ) + 1 > g (12) < 5 The underlying assumpion is ha lower real esae pries ogeher wih a higher average quaniy of spae onsumed resuls in equal shares. 6 Alhough in realiy preferenes may hange oninuously, hereby always seeking for a new equilibrium, we model a disree hange of preferenes o expliily show he effes of suh a hange. 10

11 (ii) One he oher hand, exising inenives for a reloaion of boh residene and plae of work iniiae shifs in onsumer ype owards group 3. Wih respe o full migraion o he peripheral region, urban sprawl implies ( g 1 ) > ( g 1 ) + 1 and ( 3 ) ( g 3 ) + 1 g (13) < As a onsequene, he amoun of labour available in region h rises. Sine i is he labour fore ha deermines he variey of onsumpion goods offered o households and he diversiy of inpus available o firms, he well being of hinerland residens rises. Le he share of households living in eiher region be g = g1 and g h = g 2 + g3. Then, referring o (12) and (13), urban sprawl resuls in a selemen sruure haraerised by ( g ) > ( g ) + 1 and ( h ) < ( g h ) + 1 g wih g + = 1 g h (14) for eah poin in ime A derease in he share of households living in he enre and, aordingly, an inrease in he share of households living in he hinerland imply dispersed housing sruures. Wih slow adapaion in housing ondiions, uiliy levels will have equalised aross regions in he long run. I.e. in period +1 marginal revenue equals marginal os. ( ) 1 ( U h ) + 1 U for period +1 (15) + = This new equilibrium does no solely sem from hanged preferene, bu i resuls from he ineraion of enrifugal and enripeal fores inheren in he presen 2- region se up. In pariular, he resuling dynamis of residenial adjusmens, predominanly owards he hinerland 7, leads o an equilibrium (15) wih more dispersed selemen sruures. 7 Despie a deerioraion of urban environmenal qualiy, migraion from region h o migh our. In his ase, enripeal fores ouweigh dispersion fores for some proporion of ype 2 or 3 onsumer, e.g. he housing or lifesyle effe is weakened due o sronger ompeiion for land and/or due o higher hinerland ongesion levels. 11

12 3 NUMERICAL IMPLEMENTATION AND SIMULATION INSIGHTS Using a wo-regional spli up of eonomi daa of he NUTS III region Graz (Ausria), derived by using he provinial inpu-oupu sruure of Syria, he model a hand an be esed. Firsly, sruural rends as idenified by empirial daa exemplify he adjusmen proesses inheren in he presen model. The empirial model hereby helps us o idenify he relevane of enrifugal and enripeal fores. Seondly, he model of seion 2 is implemened wihin GAMS (Brooke e al., 1998) using he modelling framework MPSGE (Ruherford, 1998) and he solver PATH (Dirkse and Ferris, 1995) in is wih Todd Munson expanded version EMPIRICAL IMPLEMENTATION The NUTS III region Graz in Ausria onsiss of he wo poliial disris Graz iy and Graz hinerland. In fa, pas deades have shown a srong movemen of is populaion owards he hinerland, wih urrenly 20% of he labour fore working in he iy ommuing from ouside. Table 1 indiaes an inreasingly dispersed selemen sruure wih a rise in share of hinerland residens from 28.6% in 1971 iy of Graz share [%] Graz hinerland share [%] , , , , , , , ,7 Table 1: Developmen of populaion spli up in NUTS III region Graz Soure: Saisik Ausria (populaion ensus 1971/1981/1991/2001) o 36.7% in 2001 of oal NUTS III region populaion. Due o wide-ranging job opporuniies and araive shopping failiies prevailing in he enre region, he hange in housing paerns owards dispersed sruures (Table 1) implies an inrease in he number of ommuers from he hinerland o he enre (Table 2). ommuers from he hinerland o he iy ommuers from he iy o he hinerland hinerland residens (workfore) Table 2: Commuers wihin NUTS III region Graz Soure: Saisik Ausria (populaion ensus 1971/1981/1991/2001) In pariular, sine 1971 he number of in-ommuers from he hinerland has inreased onsiderably and reahed in In he onex of our model, he share of onsumers in group 2 (g 2 ) has grown due o households swihing from 12

13 ype 1 o ype 2 (see equaion 12). Besides, Table 2 indiaes ha urrenly (2001) some 50% of hinerland workfore residens ommue ino he enre for work. Muniipaliies wihin Graz hinerland wih a respeive share of 40.1% and more are illusraed in Figure 1. Figure 1: Share of ommuers in hinerland workfore populaion (muniipaliy level) An imporan poin is, however, o differeniae he growh in Graz iy inommuers and he growh in he number of hinerland workfore populaion. In pas deades, he inrease in ommuers has been weaker han he rise in he hinerland workfore populaion (Figure 2). In our model language, he inenives o swih o ype 3 onsumer insead of geing a ype 2 residen are srenghening inrease in hinerland residens inrease in ommuers Figure 2: Change in hinerland workfore populaion vs. hange in hinerland o iy ommuers Soure: Saisik Ausria (populaion ensus 1971/1981/1991/2001) 13

14 This shif in residene loaion owards he hinerland is due o a variey of faors, inluding for example shifs in real esae pries and, inreasingly, environmenal onsideraions. This arises sine he region is haraerised by a very dynami developmen wih subsanial derimenal effes in he ranspor seor. These inlude high amouns of loal polluans like pariulae maer (PM 10 ) and regular ollapses of raffi flows in rush hours. Firsly, onenraion levels are high due o large amouns of emissions, and, seondly and more imporanly, due o high levels of ground PM 10 raising when no reduion proesses are a work. The laer is pariularly he ase in inversion layer weaher siuaions, whih some iies like Graz are subje o due o heir basin-like opography. I is hese environmenal onsideraions ha we ake as a saring poin in our analysis, and look a heir ineraion wih oher fores suh as housing pries or ongesion oss. More speifially, we use an iniial share of environmenal qualiy onribuing o welfare by 25% wih inhabians of Graz iy and by 33% wih hinerland inhabians. We alibrae he model o he 2001 daa se, inluding he 2001 referene spli up of residene loaion in he enre and hinerland region. We hen exogenously shok he iniial equilibrium by a 10% deline in environmenal qualiy supplied in he enre. Ciy inhabians hus experiene an inenive o resele o he peripheral region. In his respe, he empirial implemenaion esimaes parameer values and helps us o gain furher insighs ino inerdependenies in he eonomy. The CGE approah serves as a valuable baking for he analyial general equilibrium model, sine he omplexiy, mainly in erms of endogenous ranspor-relaed polluion and Dixi-Sigliz (1977) variey effes, make he model mahemaially inraable. The CGE model is equally useful o esimae he magniude, no only he sign, of he impa of hanges in exogenous ondiions on key eonomi variables. Besides, he model an help o idenify general equilibrium effes of exogenous shoks ha iniially were no obvious. As for he presen model, wih respe o he sign and magniude of inerregional migraion proesses, hree fields require a sensiiviy analysis. These inlude (i) he elasiiy beween hinerland housing pries, real esae pries mainly, and he number of hinerland residens, i.e. he housing ongesion impa of migraion, (ii) he elasiiy beween (exernal) ongesion oss and he number of ommuers, i.e. he ranspor ongesion impa of ommuing, and (iii) he elasiiy beween he region speifi amoun of polluans and he number of ommuers, i.e. he environmenal impa of ommuing, In a firs sep, he respeive parameer values are aligned wih empirial daa for he wo Ausrian regions addressed. Seondly, he exen of sensiiviy in he above-menioned hree dimensions is deermined for he base ase senario. 14

15 3.2 INCENTIVES FOR MIGRATION We inrodue a 10% deline in environmenal qualiy in he enre region an exogenous shok indiaing he inreased environmenal awareness of Graz iy residens o invesigae he fores riggered by an environmenally moivaed hange in awareness: Boh enripeal and enrifugal fores are srongly inerlinked wih he spaial differeniaion in environmenal qualiy and, equally imporan, wih ranspor and housing oss. Moreover, agglomeraion fores originae from inreasing reurns o sale and he implied spaial disribuion of jobs wih onsumers minimising ommuing effor. In our analysis he following fores are a work: Cenrifugal fores: Environmenal qualiy and feedbak from ommuing (lifesyle-effe) New environmenal preferenes demand a high qualiy of living, vas spae and a high rereaion value, prevailing in peripheral regions. Real esae pries (housing effe) Residens end o migrae o he region wih less ompeiion for land and housing, i.e. where real esae pries are lower. In he presen model, hinerland housing pries depend on he exen of hange in urban sprawl and are given by ( + Δsprawl) HC = p 1 α (16) h h Cenripeal fores: Transpor (inluding ongesion) oss (os-of-ranspor effe) The oss for passenger ransporaion due o ongesion are lower in less dense areas. In he presen model, ype 2 onsumers pay ongesions oss due o heir daily ommuing aiviy. p CONS 2 ( 1+ Δsprawl) = p β (17) Produ variey and infrasruure (proximiy effe) People wan aess o a variey of differeniaed produs and o loal publi goods. Urban agglomeraions offer wide-ranging job opporuniies as well as araive shopping failiies. While he environmenal qualiy is a enrifugal fore, driving owards migraion o beome a ype 2 or ype 3 onsumer equally srong, here are enripeal fores, 15

16 driving owards remaining in he enre, ye of differen magniude aross onsumer ypes 2 and 3. Thus, iy residens are onfroned wih he hoie wheher o reloae heir residene o he hinerland, and if so, wheher also o hange heir plae of work. We find he following housing ongesion impas (enripeal) on he number of ommuers, i.e. he hange in urban sprawl, one we redue he observed environmenal qualiy in he enre by 10% (enrifugal) (Figure 3). We do no aoun for ommuer polluion or ranspor ongesion. Wih a housing prie impa of α=1, he new endogenous equilibrium is haraerised by an inrease in he number of ommuers by 14.5%. If we le α=3, we find a rise in ommuers by 5.6%. This demonsraes he srong enripeal impa of housing prie adjusmen in he hinerland. % hange in urban sprawl (ype 2) % enre environmenal qualiy deline 1,0 3,0 4,0 4,5 5,0 6,0 housing ongesion impa of migraion (enripeal) Figure 3: Housing ongesion impa of migraion (α) on he number of ommuers afer 10% deline in iy environmenal qualiy Building on empirial daa for he period 2001 o 2004, we find ha a 1% rise in Graz hinerland populaion inreases real esae pries in hinerland region h by some 9%. The parameer esimaion is based on 600 o 800 m 2 piees of land for normal-qualiy sies. Sine operaing oss are no inluded, we esimae a medium housing parameer of α=4.5. Ye he shor period of referene daa requires a sensiiviy analysis for differen values of α. However, aknowledging he imporane of polluion feedbak effes from ommuing (enrifugal), whih are generally more imporan in he enre, we observe a re-enforemen of urban sprawl. Figure 4 shows he addiional inrease in ype 2 onsumers due o he environmenal impa of ommuing for low (α=6), medium (α=4.5) and srong (α=3) housing effes. Inluding he polluion feedbak impa and solving for he endogenous equilibrium, we find he share of 16

17 ommuers o rise by anoher 0.5% poins (polluion impa = 1.0) and 1.2% poins (polluion impa = 2.0), respeively, for he medium housing ase of α=4.5. 8,0 7,0 10% enre environmenal qualiy deline % hange in urban sprawl 6,0 5,0 4,0 3,0 2,0 1,0 0,0 0,00 0,25 0,50 1,00 1,50 2,00 environmenal impa of ommuing (enrifugal) low housing ongesion impa of migraion (enripeal) medium housing ongesion impa of migraion (enripeal) high housing ongesion impa of migraion (enripeal) Figure 4: Environmenal impa of ommuing on he number of ommuers afer 10% deline in iy environmenal qualiy Addiional ransporaion ongesion oss due o ommuing are iner alia responsible for he balane beween ype 2 and ype 3 onsumers. These oss basially a as enripeal fores, sine hey inrease oss o ommue o he enre. In he onex of our model, however, hey inie ype 1 onsumer o fully migrae o he hinerland. Table 3 depis ransporaion ongesion impas on he number of ommuers for differen housing ongesion levels. The srengh of his fore in erms of reduing ommuing aiviies urns ou o be learly weaker han he housing prie adjusmen. This is due o is ype 2 onsumer speifi haraer (see equaion 17). β α , Table 3: Transpor ongesion impa (β) for differen housing ongesion impa levels (α) on he number of ommuers (in %) afer 10% deline in iy environmenal qualiy 17

18 4 POLICY ISSUES Cenral o he idea of poliy seleion is he spaial resruuring of urban areas in order o hange ar-dependen mobiliy paerns. As he design of urban ores is a major reason for urban sprawl, a suppor of dense living wih high living qualiy would ounera his proess. Thus, he aim is o make he urban enre more araive and, equally imporan, o regulae land use in order o reae mixed-used areas wih high densiy (OECD, 2005). This suppors publi ranspor infrasruure and resuls in a lower ar dependeny in he overall region. Clearly, urren healh and noise impas all for a ranspor reorganisaion in order o ahieve mobiliy and aess opions ha do no involve subsanial environmenal effes. However, hough he spaial sruure of an eonomy depends on ranspor organisaion, spaial planning poliy is more effeive in seering (long-erm) mobiliy paerns han ranspor poliy (OECD, 2005). Thus, hoies in ranspor and long-erm hoies in land use and selemen sruure are muually dependen. The following lis omprises a seleion of poliy measures we onsider suiable for direing spaial impas on urban ranspor sruures o address ar-relaed polluion. I omprises boh long-erm insrumens and insrumens available for shor-erm effes. For eah insrumen, he inegraion ino he model of seion 2 is disussed briefly. Resruuring of home onsruion subsidies Subsidies for new onsrued homes are redireed o he remodelling of old houses. This promoes dense living in wo differen aspes: One he one hand, i redues urban sprawl and fosers dense living in he enre. While, on he oher, i promoes dense living in he periphery and herefore suppors publi ranspor. An addiional effe is he reduion of overall (privae) energy onsumpion sine new houses are generally beer isolaed due o sronger legal requiremens. Imporanly, he resruuring of subsidies seers long-erm ranspor demand via is influene on he selemen sruure. I an be inegraed ino he model via higher housing oss HC h in he hinerland. Cordon priing The mehanism of ordon priing harges ars ha ener a high-aiviy area. Thus, region is enirled wih a ordon suh ha fees are olleed from people driving ino he enirled region via oll boohs or parking permis. Moreover, pries may vary by ime of day in order o address peak ongesion periods. Cordon priing aims a onsumers overing infrasruure mainenane oss or inernalising environmenal and healh oss of passenger ranspor. I eners he model as a 18

19 lump sum ax on ranspor oss per ommuing way (onsan fee per enry in he enral region) for group 2 onsumers. Improvemen of infrasruure for pedesrians and yling (enre) or esablishmen of parks and rereaion areas (enre) Cyle raks are improved in erms of safey and exended o build up a larger nework for bikers. New rereaion areas suh as small parks and oher ar-free zones are esablished in he ore region and exising ones are mainained auraely. This resuls in a reduion in ar use and, aordingly, in a reduion of spae requiremens for ranspor infrasruure and parking in he enre. Consequenly, redued levels of polluion and ongesion and more spae o live ou individualiy make he ore region more araive. This poliy measure is implemened as an inreased environmenal qualiy in region. Sri parking resriions and provision of park&ride failiies or improvemen of publi ranspor infrasruure and servie (overall region) In he enre, he number of parking los is redued and/or parking fees are inreased onsiderably. On he ouskirs, park&ride failiies, offering onneions a frequen inervals, are provided a moderae pries. The measure eners he model via hanged ranspor demand (wih respe o quaniy of ranspor demanded and modal spli) for he overall region, i.e. for he enre and he hinerland. This hanged demand an be modelled hrough a shorer average ommuing way T rr (in unis driven), hereby indiaing lower levels of emissions per group and region (see equaion 6). 19

20 5 CONCLUSIONS This paper formulaes a wo-region general equilibrium model, in whih residens are mobile beween an urban ore and is hinerland. Using a spaial CGE analysis we supply an empirial implemenaion in he new eonomi geographi sphere. Saring from spaially differeniaed polluion levels, aused by ommuing paerns, we look a heir ineraions wih oher fores involved suh as shifs in ongesion levels and housing pries. Differenes in boh real inome and environmenal qualiy onsiue he welfare differenial for households hoosing heir region of residene. A higher eseem of environmenal qualiy drives selemen o he hinerland, unil he marginal benefi is ounerbalaned by inreased ranspor or housing oss. The resuling inrease in ommuing aiviies riggers a polluion feedbak-effe, saring a viious irle. The long erm equilibrium, equaing per apia uiliy in he wo regions, implies boh oo high hinerland populaion and oo high ommuing levels. Thereby, he umulaive resul of individual uiliy maximising aions leads o a soially subopimal ouome. I follows ha, wih an expeed exeedingly high level of resoure wasage, here is obviously room for poliy inervenion, boh for spaial planning and ranspor poliy, in order o foser more susainable selemen sruures. Housing prie adjusmen in he hinerland was found as having he sronges enripeal impa. The empirial analysis herefore suggess redireing provinial funding shemes for housing onsruion and developmen from new onsruion o he remodelling of old houses and dense housing, hereby seering long-erm ranspor demand. Wha follows is ha he resuling environmenal qualiy deline boh in he enre and he hinerland as well as he rise in ongesion for ommuers an be miigaed by spaial planning insrumens. 20

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