Three Essays on Households’ Location Decisions: Analysis of the Processes of Gentrification and Rural-urban Migration by Laura Helena Atuesta

Using econometric, theoretical and modeling approaches, this dissertation studies how the processes of gentrification and interregional migration affect the location decisions of individuals. The first paper analyzes the effect of gentrification on the housing price premium distribution using data from Chicago. Assuming a monotonic relationship between housing prices and income, the results suggest that gentrification causes displacement of the low-income population because the appreciation of houses in the lower tail of the distribution is greater in properties located in gentrified neighborhoods. The estimations correct for endogeneity of the gentrification definition, and for the spatial correlation of housing prices. The second paper develops a general equilibrium model of workers’ interregional allocation. The model considers an economy with two sectors called manufacturing and violence, and mobile labor and capital. Workers choose their location by observing the wage differentials and two distortions in the economy: the existence of unemployment in the cities and a distortion in the violence sector related to the “guilt and fear” faced by individuals working there. An increase in the manufacturing wage increases the unemployed labor in the cities, but the effect is lower when the initial unemployment is high. On the other hand, an increase in the manufacturing wage could either increase or decrease the violence labor, and these changes are less positive (or more negative) with high initial levels of violence. Finally, the third paper uses a CGE-microsimulation model to analyze the effects of an ex ante legalization of drugs on the Colombian economy. Changes in wages and migration are estimated using a labor participation model, and households demand and welfare measures are calculated using the Almost Ideal Demand System. The impacts of legalizing drugs are analyzed under different scenarios with different assumptions regarding the changes in drug price, government investment and the termination of the armed conflict. If the legalization of drugs ends the armed conflict, economic welfare is only improved if the government reinvests the military expenditures into other productive sectors. If the armed conflict does not end with legalization, the legalization of drugs could improve economic welfare in rural and urban areas. These welfare effects are not monotonic with income; the lowest income deciles benefit more than the highest deciles, with rural areas benefiting more than urban areas.