URBAN ECONOMICS

Monocentric - one center of economic activity

• Dominant city form until early 20th century

• Characteristic of small to mid-sized cities

• Need to know to understand transition to multicentric cities

• Lessons can be applied to multicentric cities

1. Central business district (CBD)

a. Assumptions:

• Central export node

• Radial intracity transportation system

• Agglomerative economies - face-to-face contact important

b. Industrial land use

(1) Fixed factor proportions

Q = quantity produced

P = price of product

t = transport cost per ton per mile

u = distance to marketplace

C = nonland production costs

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• Bid-rent function - amount firms arewilling to pay at different locations

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(2) Input substitution

• Suppose nonland inputs can be substituted for land

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c. Commercial (office) land use

• Travel cost is based on the opportunity cost of time

• Bid-rent function:

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2. Residential land use

a. Assumptions

(1) One member of household commutes to a job in the CBD

(2) Noncommuting travel is insignificant

(3) Public services and taxes are the same at all locations

(4) Environmental quality is the same at all locations

(5) All households have the same income and tastes for housing

(6) Opportunity cost of commuting time is zero

=> residents want to live closer to the CBD

b. Housing price function

• Indicates how much households are willing to pay for dwellings at different locations

• Price is per unit of housing services

(1) No consumer substitution

• Dwelling size is fixed

Ex. -

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• Tradeoff between commuting costs and housing costs

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(2) Consumer substitution

• Housing consumption depends on price of housing (Law of Demand)

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(3) Residential bid-rent function

• Amount housing producers (developers) are willing to pay for land at different locations

• Based on leftover principle:

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Ex. -

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(4) Residential density

Density decreases with distance from CBD, due to:

• Consumer substitution - more housing consumed as price declines

• Producer substitution - more land per unit of housing is used as land prices drop

3. Equilibrium land use

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Implications:

• Office firms occupy center of CBD, followed by manufacturers and then residential

• Employment is concentrated in the CBD

4. Relaxing the assumptions

a. Time cost of commuting

• Time valued at 1/3 to 1/2 of the wage, makes residential bid-rent function steeper

b. Noncommuting travel

• Residential bid-rent function steeper if noncommuting travel destinations concentrated in CBD, relatively unaffected if destinations dispersed

c. Two-earner households

• Two commuting trips makes residential bid-rent function steeper

d. Spatial variation in public goods and taxes

• Housing prices higher in areas with more and better services, lower taxes

e. Spatial variation in pollution and amenities

• May make housing-price function positively sloped

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5. Income and location

a. Tradeoff between housing and commuting costs:

• Commuting costs increase with distance from the CBD

• Housing costs per unit decrease with distance from the CBD

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• Wealthy have higher opportunity cost of time => live closer to CBD

• Wealthy consume more housing => live farther away from CBD

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b. Income and bid-rent functions:

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• Depends on the income elasticity of housing demand and the income elasticity of commuting costs

c. Other explanations

(1) New suburban housing

(2) Fleeing central-city problems

(3) Suburban zoning

6. Land and labor market interaction

a. Small, open city

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b. Effects of a transportation improvement

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c. Other effects