Social scientists have long used ‘chain’ metaphors, yet their methodological justification remains somewhat hazy. This paper offers a rationale for using chains to measure changes in economic welfare in urban and regional contexts. In contrast to the Marshallian surplus, which well describes situations in which price changes generate rents in a single market, chains are especially useful in markets where changes lead to the transmission of demand or supply through a series of markets characterized by sticky prices and markups. This argument is illustrated by reference to chain-driven analyses of local production, labor, and housing markets. The institutional structures that underpin chain models are stressed.

In theory, new regional jobs yield two distinct sources of welfare gains to workers: (1) mobility gains achieved by workers as they move up job chains and (2) traditional Marshallian surpluses enjoyed by all workers as labor markets tighten. In the past, we have argued that the second channel is likely to be small relative to the first. This paper integrates a chain model (using PSID job change data) with a modified-Marshallian model based on “wage curves” (estimated from CPS data) to formalize and test that argument. High wage jobs with modest wage–unemployment elasticities show Marshallian effects only 10 percent to 20 percent the size of mobility effects. Low wage jobs with somewhat higher elasticities show Marshallian effects from 40 percent to 70 percent the size of mobility effects.

The tourism industry is characterized by severe shifts in demand that play havoc with forecasting future investment. Within the tourism industry, the need for large-scale initial capital investment in the hotel sector, make the latter particularly vulnerable to the vagaries of the tourism market. Given an up-turn in demand, the hotel industry cannot always respond immediately and its' response is likely to vary across regions. There is therefore a need for a forecasting tool that can estimate the magnitude of the demand 'push' that can stimulate the hotel sector into new investment and the extent to which this response is regionally differentiated. Using a multi-regional input output (MRIO) augmented by an investment matrix, this paper demonstrates the capabilities of such an approach. Regional hotel industry outputs for four classes of hotels in the six regions of Israel are estimated. Expected regional rates of return to hotel investment are compared with actual (reported) rates of return and the discrepancy between the two explained. Regional hotel (per room) capacity coefficients are also estimated and regional responses to an increase in demand of 100,000 extra tourists are calculated in terms of additional hotel rooms and capital investment.

The paper stresses the importance of accounting for regional heterogeneity in the dynamic analysis of regional economic disparities. Studies of regional growth mainly presume that regions are homogeneous in their socio-demographic composition. It is argued that the analysis of regional convergence needs to be tested conditionally, i.e. conditional upon the socio-demographic structure of the workers in the various regions. To this end, various measures of conditional regional earnings inequality are estimated using Israeli regional data for the period 1991–2002. The results show that about half of regional earnings inequality may be accounted for by the conditioning variables. Conditioning also makes a large difference to estimates of Gini and beta-convergence. Conditional beta and Gini mobility are about half their unconditional counterparts.