The Origins of Cities:  Central Place Theory


The Initial Assumptions:

1.     Homogeneous plain (resources the same everywhere)

2.     Initially populated by self-sufficient households

3.     Transportation costs are equal in all directions and proportional to distance


Under these three conditions, production will concentrate at particular places due to economies of scale in production.


Determinants of economies of scale:

          1.  The role of the production function:  changes in capital investment and long-run average costs

2.     Demand density (population and income per capita)

3.    The role of innovation and the entrepreneur


Determinants of the extent of market areas of individual firms

1.      Extent of economies of scale (increase market to individual firm)

2.      Demand-density (higher demand density increases frequency and lowers market area of individual firms in a given area.)

3.      Transportation costs (effect is ambiguous)  Lower costs increase demand density and support more firms with smaller market areas or allow more distant customers to substitute lower production costs for transportation cost of greater distance traveled)


The role of competition results in imperfect competition or monopolistic competition solution with differentiation of the same product based upon geographic location.


The hierarchy of central place activities results from the sharing of common locations due to the following agglomeration economies:

1.     Economies of scope

2.     Localization economies

3.     Urbanization economies

Higher-ordered cities perform economic functions for lower-ordered cities that are in their hinterland for a particular activity.


Evaluation of Central-Place Theory


The pattern of cities predicted by central place theory may not hold because of the failure to meet initial assumptions.


1.      Production costs may vary not only because of economies of scale but also by natural resource endowments (i.e. not a homogeneous plain)

2.      Transportation costs are not equal in all directions

3.      Rural markets (initially households) are not evenly distributed

4.      Non economic factors (culture, politics, leadership) may be important but not evenly distributed

5.      Competitive practices may lead to freight absorption and phantom freight (other forms of imperfect competition)


Limits to Urban Size


Historical constraints on the size of a city:

1.      The cost of transportation to export goods and import agricultural products.

2.      The degree of economies of scale relative to market demand.

3.      The cost of carrying on activities within the city itself (commuting to work, delivery of water, disposal of waste and sewage)


The history of urbanization follows the relaxation of these constraints.




Preindustrial Cities

1.      Frame buildings (before structural steel) led to low building density

2.      Hoof and foot overland transportation or bulk transport by water

3.      Private water wells, dirt streets, and gravity waste disposal (epidemic diseases were prevalent—NY City death rate doubled from 1810 to 1859 with increase in population density without clean water and waste disposal)

4.      Workers lived within 3 miles of job centered along a navigable waterway

5.      Major cities were commercial cities rather than industrial cities (limited by transport cost to achieve demand density needed for economies of scale)


Industrial Cities

1.      The development of canals and railroads during the first half of the nineteenth century enabled economies of scale to be achieved.

2.      Import substitution further added to domestic production.

3.      Inner city transportation advances with the horse-drawn omnibus and street car doubled radius of city beyond walking distance (area increased four times)

4.      Cheap smelting and electricity led to electric trolley and development of hub and spoke form of cities.  Subways developed to relieve overland congestion.

5.      Structural steel and elevators allowed for greater land use density.  Housing became less expensive with balloon construction (frames nailed together rather than fit through slots, etc.)

6.      The decentralization of cities (new cities with less population density) was fueled by the development of electric power rather than steam power in industry and by the internal combustion engine.

7.      Automobiles and trucks affect housing and firm locations, leading to a different form of the city (multinuclear)

8.      Firms separated their “packet of functions” (central office, production, and warehousing) based upon the need for central city access and the availability of land.


Post Industrial Cities

1.      The development of services rather than industry as an economic base.

2.      The role of face to face contact for selective urban functions

3.      The clustering effect of creating new innovations

4.      The decentralization forces of information technologies

5.      The problems of urban diseconomies of agglomeration as opposed to the advantages of agglomeration and economies of scale. 


Cities in the “New Economy”

City Rankings in 1994:

Census 2000 rankings:

Best Places to Live:

Fattest and Fittest: