Urban economics

Last updated

Urban economics is broadly the economic study of urban areas; as such, it involves using the tools of economics to analyze urban issues such as crime, education, public transit, housing, and local government finance. More specifically, it is a branch of microeconomics that studies urban spatial structure and the location of households and firms ( Quigley 2008 ).

Contents

Much urban economic analysis relies on a particular model of urban spatial structure, the monocentric city model pioneered in the 1960s by William Alonso, Richard Muth, and Edwin Mills. While most other forms of neoclassical economics do not account for spatial relationships between individuals and organizations, urban economics focuses on these spatial relationships to understand the economic motivations underlying the formation, functioning, and development of cities.

Since its formulation in 1964, Alonso's monocentric city model of a disc-shaped Central Business District (CBD) and the surrounding residential region has served as a starting point for urban economic analysis. Monocentricity has weakened over time because of changes in technology, particularly, faster and cheaper transportation (which makes it possible for commuters to live farther from their jobs in the CBD) and communications (which allow back-office operations to move out of the CBD).

Additionally, recent research has sought to explain the polycentricity described in Joel Garreau's Edge City. Several explanations for polycentric expansion have been proposed and summarized in models that account for factors such as utility gains from lower average land rents and increasing (or constant) returns due to economies of agglomeration ( Strange 2008 ).

Introduction

Urban economics is rooted in the location theories of von Thünen, Alonso, Christaller, and Lösch that began the process of spatial economic analysis ( Capello & Nijkamp 2004 :3–4). Economics is the study of the allocation of scarce resources, and as all economic phenomena take place within a geographical space, urban economics focuses on the allocation of resources across space in relation to urban areas ( Arnott & McMillen 2006 :7)( McCann 2001 :1). Other branches of economics ignore the spatial aspects of decision making but urban economics focuses not only on the location decisions of firms but also of cities themselves as cities themselves represent centers of economic activity ( O'Sullivan 2003 :1).

Many spatial economic topics can be analyzed within either an urban or regional economics framework as some economic phenomena primarily affect localized urban areas while others are felt over much larger regional areas ( McCann 2001 :3). Arthur O'Sullivan believes urban economics is divided into six related themes: market forces in the development of cities, land use within cities, urban transportation, urban problems and public policy, housing and public policy, and local government expenditures and taxes. ( O'Sullivan 2003 :13–14).

Market forces in the development of cities

Market forces in the development of cities relate to how the location decision of firms and households causes the development of cities. The nature and behavior of markets depend somewhat on their locations therefore market performance partly depends on geography.( McCann 2001 :1). If a firm locates in a geographically isolated region, its market performance will be different than a firm located in a concentrated region. The location decisions of both firms and households create cities that differ in size and economic structure. When industries cluster, like in Silicon Valley in California, they create urban areas with dominant firms and distinct economies.

By looking at location decisions of firms and households, the urban economist is able to address why cities develop where they do, why some cities are large and others small, what causes economic growth and decline, and how local governments affect urban growth ( O'Sullivan 2003 :14). Because urban economics is concerned with asking questions about the nature and workings of the economy of a city, models and techniques developed within the field are primarily designed to analyze phenomena that are confined within the limits of a single city ( McCann 2001 :2).

Land use

Looking at land use within metropolitan areas, the urban economist seeks to analyze the spatial organization of activities within cities. In attempts to explain observed patterns of land use, the urban economist examines the intra-city location choices of firms and households. Considering the spatial organization of activities within cities, urban economics addresses questions in terms of what determines the price of land and why those prices vary across space, the economic forces that caused the spread of employment from the central core of cities outward, identifying land-use controls, such as zoning, and interpreting how such controls affect the urban economy ( O'Sullivan 2003 :14).

Economic policy

Economic policy is often implemented at the urban level thus economic policy is often tied to urban policy ( McCann 2001 :3). Urban problems and public policy tie into urban economics as the theme relates urban problems, such as poverty or crime, to economics by seeking to answer questions with economic guidance. For example, does the tendency for the poor to live close to one another make them even poorer? ( O'Sullivan 2003 :15).

Transportation and economics

Urban transportation is a theme of urban economics because it affects land-use patterns as transportation affects the relative accessibility of different sites. Issues that tie urban transportation to urban economics include the deficit that most transit authorities have and efficiency questions about proposed transportation developments such as light-rail ( O'Sullivan 2003 :14). Megaprojects such as this have been shown to be synonymous with unexpected costs and questionable benefits. [1]

Housing and public policy

Housing and public policy relate to urban economics as housing is a unique type of commodity. Because housing is immobile, when a household chooses a dwelling, it is also choosing a location. Urban economists analyze the location choices of households in conjunction with the market effects of housing policies ( O'Sullivan 2003 :15). In analyzing housing policies, we make use of market structures e.g., perfect market structure. There are however problems encountered in making this analysis such as funding, uncertainty, space, etc.

Government expenditures and taxes

The final theme of local government expenditures and taxes relates to urban economics as it analyzes the efficiency of the fragmented local governments presiding in metropolitan areas ( O'Sullivan 2003 :15).

See also

Related Research Articles

Regional science is a field of the social sciences concerned with analytical approaches to problems that are specifically urban, rural, or regional. Topics in regional science include, but are not limited to location theory or spatial economics, location modeling, transportation, migration analysis, land use and urban development, interindustry analysis, environmental and ecological analysis, resource management, urban and regional policy analysis, geographical information systems, and spatial data analysis. In the broadest sense, any social science analysis that has a spatial dimension is embraced by regional scientists.

<span class="mw-page-title-main">Transportation planning</span> Process of planning for movement of people and goods

Transportation planning is the process of defining future policies, goals, investments, and spatial planning designs to prepare for future needs to move people and goods to destinations. As practiced today, it is a collaborative process that incorporates the input of many stakeholders including various government agencies, the public and private businesses. Transportation planners apply a multi-modal and/or comprehensive approach to analyzing the wide range of alternatives and impacts on the transportation system to influence beneficial outcomes.

<span class="mw-page-title-main">Economic geography</span> Subfield of human geography and economics

Economic geography is the subfield of human geography which studies economic activity and factors affecting them. It can also be considered a subfield or method in economics. There are four branches of economic geography. There is, primary sector, Secondary sector, Tertiary sector, & Quaternary sector.

<span class="mw-page-title-main">Rural area</span> Geographic area that is located outside towns and cities

In general, a rural area or a countryside is a geographic area that is located outside towns and cities. Typical rural areas have a low population density and small settlements. Agricultural areas and areas with forestry typically are described as rural. Different countries have varying definitions of rural for statistical and administrative purposes.

One of the major subfields of urban economics, economies of agglomeration describes, in broad terms, how urban agglomeration occurs in locations where cost savings can naturally arise. Most often discussed in terms of economic firm productivity, agglomeration effects can also explain the phenomenon where large proportions of the population are clustered in cities and major urban centres. Similar to economies of scale, the costs and benefits of agglomerating increase the larger the agglomerated urban cluster becomes. A prominent example of where agglomeration has brought together firms of a specific industry is Silicon Valley in California, USA.

<span class="mw-page-title-main">Edge city</span> New unstructured settlement created near a major city

Edge city is a term that originated in the United States for a concentration of business, shopping, and entertainment outside a traditional downtown or central business district, in what had previously been a suburban residential or rural area. The term was popularized by the 1991 book Edge City: Life on the New Frontier by Joel Garreau, who established its current meaning while working as a reporter for The Washington Post. Garreau argues that the edge city has become the standard form of urban growth worldwide, representing a 20th-century urban form unlike that of the 19th-century central downtown. Other terms for these areas include suburban activity centers, megacenters, and suburban business districts. These districts have now developed in many countries.

Urban sprawl is defined as "the spreading of urban developments on undeveloped land near a city." Urban sprawl has been described as the unrestricted growth in many urban areas of housing, commercial development, and roads over large expanses of land, with little concern for urban planning. In addition to describing a special form of urbanization, the term also relates to the social and environmental consequences associated with this development. Medieval suburbs suffered from loss of protection of city walls, before the advent of industrial warfare. Modern disadvantages and costs include increased travel time, transport costs, pollution, and destruction of the countryside. The cost of building urban infrastructure for new developments is hardly ever recouped through property taxes, amounting to a subsidy for the developers and new residents at the expense of existing property taxpayers.

Land-use forecasting undertakes to project the distribution and intensity of trip generating activities in the urban area. In practice, land-use models are demand-driven, using as inputs the aggregate information on growth produced by an aggregate economic forecasting activity. Land-use estimates are inputs to the transportation planning process.

<span class="mw-page-title-main">Suburbanization</span> Population shift from central urban areas into suburbs

Suburbanization is a population shift from central urban areas into suburbs, resulting in the formation of (sub)urban sprawl. As a consequence of the movement of households and businesses out of the city centers, low-density, peripheral urban areas grow. Sub-urbanization is inversely related to urbanization, which denotes a population shift from rural areas into urban centers.

Masahisa Fujita is a Japanese economist who has studied regional science and Urban economics and International Trade, Spatial Economy. He is a professor at Konan University and an adjunct professor at Institute of Economic Research, Kyoto University.

Articles in economics journals are usually classified according to JEL classification codes, which derive from the Journal of Economic Literature. The JEL is published quarterly by the American Economic Association (AEA) and contains survey articles and information on recently published books and dissertations. The AEA maintains EconLit, a searchable data base of citations for articles, books, reviews, dissertations, and working papers classified by JEL codes for the years from 1969. A recent addition to EconLit is indexing of economics journal articles from 1886 to 1968 parallel to the print series Index of Economic Articles.

<span class="mw-page-title-main">Affordable housing</span> Housing affordable to those with a median household income

Affordable housing is housing which is deemed affordable to those with a household income at or below the median as rated by the national government or a local government by a recognized housing affordability index. Most of the literature on affordable housing refers to mortgages and a number of forms that exist along a continuum – from emergency homeless shelters, to transitional housing, to non-market rental, to formal and informal rental, indigenous housing, and ending with affordable home ownership.

<span class="mw-page-title-main">German Institute for Economic Research</span> Research institute

The German Institute for Economic Research, or, more commonly DIW Berlin, is a economic research institute in Germany, involved in basic research and policy advice. It is a non-profit academic institution, financed with public grants from the Berlin Senate Department for Economics, Technology and Research and the Federal Department for Economics and Technology. DIW Berlin was founded in 1925 as the Institute for Business Cycle Research and was later renamed.

Spatial inequality refers to the unequal distribution of income and resources across geographical regions. Attributable to local differences in infrastructure, geographical features and economies of agglomeration, such inequality remains central to public policy discussions regarding economic inequality more broadly.

Economic restructuring is used to indicate changes in the constituent parts of an economy in a very general sense. In the western world, it is usually used to refer to the phenomenon of urban areas shifting from a manufacturing to a service sector economic base. It has profound implications for productive capacities and competitiveness of cities and regions. This transformation has affected demographics including income distribution, employment, and social hierarchy; institutional arrangements including the growth of the corporate complex, specialized producer services, capital mobility, informal economy, nonstandard work, and public outlays; as well as geographic spacing including the rise of world cities, spatial mismatch, and metropolitan growth differentials.

Rural economics is the study of rural economies. Rural economies include both agricultural and non-agricultural industries industries, so rural economics has broader concerns than agricultural economics which focus more on food systems. Rural development and finance attempt to solve larger challenges within rural economics. These economic issues are often connected to the migration from rural areas due to lack of economic activities and rural poverty. Some interventions have been very successful in some parts of the world, with rural electrification and rural tourism providing anchors for transforming economies in some rural areas. These challenges often create rural-urban income disparities.

UrbanSim is an open source urban simulation system designed by Paul Waddell of the University of California, Berkeley and developed with numerous collaborators to support metropolitan land use, transportation, and environmental planning. It has been distributed on the web since 1998, with regular revisions and updates, from www.urbansim.org. Synthicity Inc coordinates the development of UrbanSim and provides professional services to support its application. The development of UrbanSim has been funded by several grants from the National Science Foundation, the U.S. Environmental Protection Agency, the Federal Highway Administration, as well as support from states, metropolitan planning agencies and research councils in Europe and South Africa. Reviews of UrbanSim and comparison to other urban modeling platforms may be found in references.

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.

John Forrest Kain was an American empirical economist and college professor. He is notable for first hypothesising spatial mismatch theory, whereby he argued that there are insufficient job opportunities in low-income household areas. Kain is also notable for his focus on transport economics, for his long career of teaching at Harvard University and the University of Texas at Dallas, as well as for founding the Texas Schools Project.

Yves Zenou is a French-Swedish economist. He is a professor at Monash University and holds the Richard Snape Chair in Business and Economics.

References

  1. Bent Flyvbjerg, 2013, "Mega Delusional: The Curse of the Megaproject", New Scientist, December 2, pp. 28-29

Literature

Further reading