Economics Research Paper Review: Rethinking Detroit

Nicole K. Li
Jun 7, 2020
2 min read

Introduction:

Raymond Owens III, Esteban Rossi-Hansberg, and Pierre-Daniel Sarte published this Economics paper, and it was collected to American Economic Journal: Economic Policy Vol. 12, No. 2, May 2020. This paper extensively studies the city of Detroit. This paper included but not limited to Detroit's history, research model and explanation, policy counterfactual, and designs of alternative policies.

Selected Detroit History:

Detroit was a busy city. The river nearby was beneficial for coal and metal business. "By 1900, the automobile producers were active in Detroit, though vehicle production numbered only a few hundred units per year before rising to a few thousand by mid-decade”(262).

Two developments changed the city into the center of automobile production(262-263).

Ford Motor Company’s Model T
Henry Ford’s Adoption of the Assembly Line.

"As of 1950, Detroit built one of every two cars produced in the world, and the city's population topped 1.8 million"(263). The decline of the city started with increasing unemployment and decreasing job opportunities as plants relocated outside of the city. After the riot in 1967, some of the businesses and residents moved out of the city.

As a result, the housing value went down:

Reasons:

The perception of increased danger
Lower commute costs
Lack of coordination between resident locations plans and more

Results:

New residents entered the city while having lower incomes on average
Lower incentive to build
More empty land in the city.
The population overall decreased
The crime rate increased
Tax revenue decreased

The city government had so little low tax revenue that it was not able to provide sufficient services to residents. A proposal from the mayor suggested reallocating the remaining residents to more densely populated areas to provide "city services to 'viable' areas of the city"(Bing2012).

Selected Key Takeaways:

Why not develop areas next to downtown for lower commute cost and increasing demand for foot-traffic retails? It is because the residents do not want to be isolated. There was housing externality for resident developers.

This paper used Instrument Variables for analysis, such as productivity levels, change in productivity and distance to automobile manufacturing plant closings during the Great Recession (261.)

Selected Research Assumptions:

Of course, this research also has several assumptions. For example, "(the authors) assume that residential amenities stem entirely from residential externality"(261).

Conclusion:

No one wants to be the first regardless resident or developer
No development equilibrium because of the historical rally, lost in employment, relocation of factories. Thus, the demand for housing and income are lower.
With the lack of population, no firm and labor to boost the economy

Solution:

Raymond Owens III, Esteban Rossi-Hansberg, and Pierre-Daniel Sarte are the Economists who conducted this research. Below is the proposed solution to redevelop Detroit.

Development guarantees by the government or outside parties

This solution is predicted a new equilibrium that it will attract a positive number of active developers and residents to Detroit. With development generated, it is predicted that it will increase residential and business rent to more than $100 million/year. This will attract new renters and appreciate stakeholders given spillover effect.

Review Clarification:

This post is only a self-reflection of the research paper. It may not completely identify all the points of view, content, and concepts from the research. This post is only a personal paper review.