Chapter 1: The Nature of Urban
Areas
Two Questions:
1. What conditions are necessary for the formation of cities?
2. What can be gained from urban life?
A City is the Home of Specialists:
1. Specialists cannot survive without the produce of the land; hence, their existence depends upon productivity in an agricultural sector. The surplus in agriculture enables people to live in the city.
2. Specialists must induce farmer to part with their surplus, either by exchange or by force.
An Economy Based Upon Exchange (rather than force):
1. Must be more productive than an individual farm.
2. Relies upon economies of scale and agglomeration economies associated with the concentration of a large number of people (and businesses).
We will examine in detail the economic advantages of urban location; but, we will also see that there are disadvantages associated with urban areas. These problems associated with population density will be a significant part of the course.
What is a Region? http://community.txed.state.tx.us/
1. A region can be a nodal region, based upon a hierarchy of trade relationships;
2. It can be a homogeneous region based upon internal similarities, ie. rust belt, sun belt, etc.; or
3. It can be administrative, set up for political purposes.
What are Urban Areas? http://quickfacts.census.gov/qfd/maps/texas_map.html
1. Urban areas have many potential meanings. Population size, population density, proximity of functions, labor force mobility, lifestyle, interdependencies, externalities, etc.
2. Legal definitions include towns, municipalities, and cities that are areas designated as political subdivision by states, provinces, or national governments.
3. Urban areas are larger than cities in that they include the urbanized area around the principal political boundaries.
4. Economists view cities on a basis of their population density. But, population densities vary considerably from city to city. In general, an urban area has a higher population density than its surrounding area. Hence, the definition of a city is a relative concept that cannot be defined exclusively by population density.
5. Statistical measures based upon Metropolitan Statistical Areas (MSAs) are larger than urban places (at least 2,500 persons) and include the county or counties of central cities of at least 50,000 persons. (75,000 in New England) Suburban communities are included in the urban ring. A Consolidated Metropolitan Statistical Area (CMSA) is a combination of contiguous MSAs, which are then called Primary Metropolitan Statistical Areas (PMSAs). Today, over 75% of U.S. persons live in MSAs.
Why Urban Areas?
1. Other disciplines (historians, geographers, sociologists, political scientists) might give other sets of causes for the development of urban areas.
2. One proposition is that urban areas exist because people have found economic advantages from carrying on various activities in spatially concentrated areas. These activities might include defense, administration of religion, government activities, or the private production and distribution of goods and services.
3. Some colonial cities originally developed for one reason and have evolved into other roles. State capitals might develop into centers of high tech industry. Today the size and growth rate of urban areas is mainly determined by market forces. (Washington D.C. is an exception).
4. Was historical accident a cause of the development of cities rather than economic location factors? This assumes that location advantages did not enter into the decisions of settlers.
Scale Economies, Input Substitution, and Urban Areas:
Central Place Theory explains the
development of cities within the context of a homogeneous plain in which
differences in resources or transportation surfaces do not exist. Under this
condition, the source of a system of cities depends upon economies of scale,
transportation costs that increase with distance traveled, and demand based
upon population (and income) density.
Central Place Theory:
1. Suppose economies of scale exist in the baking of bread that is originally performed by individual households.
2. Suppose also that transportation costs are linearly related to distance traveled.
3. Finally, assume that demand is a function of population density.
These three forces can determine a market area for this activity that is performed at a Central Place. Why?
1. Movement of goods and people is expensive.
2. The combination of transportation costs and scale economies motivates producers and worker-consumers to locate close to production facilities in order to receive a lower net cost of a particular good or service (bread).
3. At the geographic market extreme the combination of lower production costs plus higher transportation costs will just equal the higher production cost of the individual household.
(*Diagram that relates production costs to demand density through economies of scale.)
(* Diagram that relates market area to production costs differences, and transportation costs. Figure 1.1)
What Determines Geographic Equilibrium for a Central Place Activity?
1. The presence of economies of scale will attract other producer located away from existing central places in order to enjoy the maximum demand in their geographic area.
2. Each geographic area is called the hinterland of that central place activity.
3. The final network of a single central place activity will be a set of circular or hexagonal geographic markets. Figures 1.2 or 1.3.
A Hierarchy of Central Places:
1. Results from the sharing of common locations by different activities, each with different scale economies.
2. Higher ordered economic activities have higher threshold demand levels and are characterized by greater economies of scale than lower ordered economic activities. There will also be a higher frequency of lower ordered economic activities in an area relative to higher ordered economic activities.
3. Agglomeration economies - shared parking, roads, other infrastructure will result in a new central place activity locating at an existing central place, but its hinterland will be larger if it is a higher ordered function.
4. The location of other central place activities with different market areas will result in a hierarchy of central places based upon the number of economic functions performed.
Order of central places Example of market areas and frequencies of
hamlets, villages, town providing hierarchy of economic functions.
Economic functions
1st order - grocery store, drug store
2nd order - also clothing store, furniture store
3rd order - also a hospital
Characteristics of a System of Cities:
1. Population is a function of employment, so that population and employment increase exponentially toward the largest central place of a hinterland.
2. Not only does population and employment increase but the intensity of land use increases with higher ordered central places. Why?
a. Scale economies and transportation costs motivate market participants to concentrate production and consumption within an area. This concentration bids up the cost of land.
b. The greater intensity of land use occurs in higher ordered cities because of input substitution between the high priced input--land-- and the amount of capital (and other inputs) used relative to land.
Changing urban patterns:
1. Same factors that cause change in market areas: a. Population and income density
b. Changes in technology affecting economies of scale
c. Changes in transportation costs
2. Tendency for lower rank to change more rapidly than highest rank: long-life of capital investment, infrastructure, incentive of new activity to fit the existing grid causes highest rank to remain relatively high.
3. When would a lower rank central place become a ghost town? Loss of essential resource or loss in competitive ability versus other larger areas. (Jobs fall and young people leave)
Evaluation of Central Place Theory:
1. Assumptions questioned (Homogeneous plain, absence of transport corridors, rural markets evenly distributed, noneconomic factors.)
2. Spatial differences in production costs - raw materials versus markets. Larger geographic markets may be served from small towns if other cost advantages present. (Manufacturing "wild cards") Hierarchy exists if wild card removed.
3. Transportation costs absorption and discontinuities, long-haul economies coupled with differences in production costs may result in surrounded market.
4. Institutional factors, such as tax policies, licensing, inspection regulation, etc. Internationally, quotas, customs, tariffs, languages and customs.
5. Product differentiation may result in geographic market overlap in which transport costs are substituted for product differences.
6. Commuting patterns and retirement patterns give rise to bedroom communities and small resort communities. Growth for reasons unrelated to employment opportunities.
The Export Base
1. According to the Central Place Model big cities export to small cities but do not import in return.
2. Small cities are able to pay for imported goods and services through "roundabout" purchases that depend upon their agricultural sector.
3. The trade of agricultural surplus by the hinterland for goods and services produced by larger cities completes the circular balance of trade.
The Export Base multiplier:
1. Cities export goods and services from those sectors with scale economies, generated basic employment and income.
2. Income also supports the consumption within the city which results in nonbasic employment to satisfy local demand.
3. The combination of both basic and nonbasic employment and income results in a multiplier effect generated by the export industry.
Space in Microeconomic Theory:
1. Price theory models traditionally consider only production costs and ignore transport cost (assuming the friction of space and distance to be costless).
2. The introduction of space complicates the price theory model, but it also solves several questions that are no longer indeterminate:
a. In a spatial world, plant size under constant returns is no longer indeterminate. It is, in fact, just large enough to satisfy one household's demand.
b. A spatial model solves the problem of pricing under increasing returns, when marginal production costs are less than average production cost. Even if production cost falls with output, transport cost generally rises with output because the only way to increase output is to ship a greater distance.
3. The introduction of space and transport cost causes problems in that equilibrium location might not be optimal or unique, especially if there are relatively few sellers. Hotelling shows that location will not be distant but will be adjacent when only two vendors exist (on a beach).
Agglomeration Economies:
Economies due to the concentration of economic activities in a central place.
They include:
1. The effects of the law of large numbers on sales of outputs and purchases of inputs that reduce the amount of fluctuations in sales, inventories, and production scheduling if not perfectly correlated among different employers.
2. Complementary labor supply and suppliers that lower costs of inventories
3. The benefits of personal interaction generates new products, processes, and new ideas. Larger cities are more innovative.
Note that some agglomeration economies are supply oriented and other
demand oriented.
1. An example of supply oriented in manufactured housing industry.
2. An example of demand oriented is shopping malls, fast foods corners, and used car districts.
Limits to Urban Size: http://www.dismal.com/thoughts/agglomeration.stm
Is there an optimal city size? Cities benefit from economies of scale and agglomeration economies, but the suffer from special costs that are a result of population density.
1. The cost of commuting to work.
2. The cost of water delivery and sewage and waste disposal. http://weber.u.washington.edu/~jwh/207mexic.htm
3. The cost of other externalities, such as crime and air pollution.
Progressive innovations have permitted increases in city size by reducing the marginal costs of population density. But, perhaps there is an optimal system of cities rather than an optimal size of an existing city.
History of Western Civilization
Application of four factors that explain why cities exist:
1. comparative advantage, specialization, and exchange;
2. internal scale economies and effect of larger demand;
3. transportation costs; and
4. agglomeration economies.
The First Cities
1. The first cities served both defensive and religious purposes
Greek Cities.
1. By 500 BC independent city-states ranging in size from a few hundred to tens of thousands.
2. Athens had a population of 150,000 and Sparta a population of 40,000.
3. Athens was a market city that originally depended upon trade but later turned to homage and tribute from lesser cities
Roman Cities.
1. Rome had a population of more than 1 million by 3 AD
2. It fed its people from a combination of trade and tribute, with tribute being more important.
3. By neglecting production activity it lost interest in trade routes and eventually declined following German tribe invasions in the 4th and 5th centuries.
Feudal Cities
1. Islamic conquest disrupted trade and growth of port cities on the Mediterranean.
2. Marauding barbarians swept across Europe, making trade and travel dangerous
3. The feudal economies of the 11th through 14th century were based on manorial estates and small walled cities.
4. Toward the end of the 14th century small defense cities gradually became market cities.
5. Market cities developed for two reasons: a) Power in the feudal system was decentralized, causing production and exchange to replace tribute and force; and b) agricultural productivity was low and cities were required to compete with homemade products with other cities rather than only for food in its hinterland.
6. Competition among medieval cities caused innovations in production and commerce. Education and literacy developed in cities.
7. The black plague between 1350 and 1450 decreased Europe's population by 1/3 to 1/2 and reduced the growth of cities.
Mercantile Cities.
1. In 15th century power transferred from feudal lords to a few monarchs largely because of economies of scale in making war and new defense innovations. (crossbows, muskets, and canons)
2. Long-distance trade developed because of two reasons:
a) Safety increased with defense system, and b) Development
of ocean travel and exploration opened up new markets.
Industrial Revolution
1. In last 2 centuries urbanization has risen exponentially.
2. Agricultural productivity increased with mechanization
3. Manufacturing innovations increased scale economies in production and led to centralization of employment.
4. Intercity transportation allowed regions to exploit their comparative advantage and opened RR cities away from ports.
5. Intracity transportation replaced the "hoof and foot" city and expanded the viable commuting distance and size of a city
6. Structural steel and elivator increase density of land use
Urbanization in the United States.
1. Pre depression period of rapid urbanization
2. Decade of great depression
3. Post war period with reversal of MSA v non-MSA growth in the 70s. Why?
a. dispersion of manufacturing employment due to intercity transportation;
b. slower decline in farm employment;
c. growth in extractive industries;
d. growth in retirement and recreation cities;
e. population "spillovers."
4. Old versus New Cities in the United States
a. The role of the automobile on the form and population density of cities.
b. The role of electric power on economies of scale in production.
The Role of Innovations on Principle
Limits to Urban Size
Preindustrial cities:
1. Changes in transportation from walking (three-mile limit). Preindustrial cities were limited to 3 miles inland from navigable waters.
2. Building limited to two or three stories.
3. Water and sewage disposal were infrastructure limits that eventually led to illness and lower life expectancy. Underground delivery of water and sewage was too expensive. Well water was easily contaminated by sewage runoff.
4. The cost of transport to the hinterland limited demand in the US that resulted in higher costs relative to Britain manufacturers (even though the latter had to pay transportation costs of cross Atlantic shipping.) Major American cities were commercial cities not manufacturing cities.
5. Cities located on or below the fall line--the largest upriver point that could be reached by oceangoing vessels.
Industrial cities:
1. Swift and dramatic improvements in overland transportation through railroads, the development of canals linking major waterways, and the use of steamboats on the Mississippi and Ohio rivers.
2. Larger markets increased specialization and exchange and increased the development of supporting industries that led to import substitution of local over foreign manufacturers.
3. Larger population made underground water and sewage distribution economically feasible.
4. The 1830s saw the development of the omnibus (a horse drawn commuter vehicle) and commuter railroads enable upper income groups to leave the city. But, the first breakthrough in 1850s was the two-horse streetcar, that moved on rails developed by innovation of cheap smelting of iron and steel. Commuter time was cut in half and the city area increased by a factor of four.
5. Streetcars had a profound effect on the form of cities around the CBD.
6. The development of the Bessemer process of smelting steel in 1856 lowered the cost of rails and enabled longer bridges to be built to span water around the city.
7. Construction innovations in the 1880s led to structural steel skyscrapers. The elevator was introducted in 1857 in New York. The development of high rise construction was due to the increased value of CBD land brought about by transport innovations and a subsequent substitution of capital for land.
8. Housing balloon construction developed to increase the pace of home building as cities began to grow.
9. Electric trolleys developed in 1884 (Cleveland) but when overhead electric trolley lines were introduced in 1887 US cities developed efficient intracity transportation that significantly lowered transport cost of people. The subway developed in the largest cities (1904 in NYC) where capital costs required more dense usage.
10. Electrical power allowed for the decentralization of manufacturing that had previously been tied to the economies of scale of the steam engine. Suburban land was cheap and not subject to city regulation of smoke and noise.
11. The internal combustion engine (and low cost asphault roadways) was the final step in the development of newer cities. The feasible geographic size of cities was increased and decentralization of economic activity within the city accelerated. Trucks have added flexibility and, with the interstate highway system, range in the delivery of goods over long distances.
12. Economic activity is still concentrated, but innovations affecting the costs of transportation and the realization of scale economies are changing the relative importance of the nation's metropolitan areas. In the future, communication technology is likely to have an even more decentralizing effect on population.