Question
One of the most important changes in U.S. cities over the past two decades is a dramatic reduction in violent crime. In this problem, we
One of the most important changes in U.S. cities over the past two decades is a dramatic reduction in violent crime. In this problem, we consider the impact of falling urban crime rates in a Rosen-Roback framework. 1. Suppose that crime is a consumer disamenity. Show the impact of a reduction in crime in a standard Rosen-Roback graph. How are equilibrium wages and rents affected in the city? Explain. [3 points] 2. Now suppose that falling crime also allows firms to be more productive, for example, because they have to spend less money on security. Show how this changes the graph that you drew for part 1. What can we say about changes in wages and rental rates under this scenario? Explain.
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