Introduction to Urban Economics

January 25, 2015

What can you say of the urban planning of Tacloban City?

How about comparing the urban design of Makati and

Tacloban?

What do you observe of the rural and urban settlement?

The residential and industrial setting in an area?

How about traffic congestion in Metro Manila versus

Baybay?

Describe the city/urban planning of these cities:

Tacloban City
Baybay City
Catbalogan City
Cebu City
Iloilo City

How does urban planning change overtime?

Discuss the history of urban economics.

Give an example of city and explain.

Why are people willing to live in dirty,noisy crowded

cities?

Urban economics started not

from town planning or industrial
breakthrough---but from traffic
congestion. (problems on the rise
of car ownership)

What is the role of transportation

system in urban planning?

Initially, urban economics explains

using economic analysis the
determination of patterns of
location given the transport
system and to predict the effects
on the pattern of land-use

Urban economics to put simply is just the study of the

citytown planning and land or real estate management
and to analyse government policies in dealing with urban
problems

Land-use

Can we induce people to move?

Tottenham said, Planning means

control- get people out and tell them
where to live..

But planners, changed their view:

Responses:

Demand for greater powers, powers

of positive and negative planning
To find out why planning controls
were circumvented
To find out using economic analysis
what the secondary effects of
planning controls would be

Primary contribution of Urban Economics

An understanding of the ways of how an urban economic

system interact (study of positive economics)
An analysis of what planners ought to do (normative
urban economics)
The analysis of what planners do and the reasons why
they do what they do (Economics of town planning)

WHY DO CITIES EXIST?

Why Do Cities Exist?

Why do cities
exist? What
determines the
location, size, shape
and growth of
cities?

Cities...
.....facilitate growth
..... exist because benefits
(innovation, production and
trade) exceed costs (cities are
noisy, dirty and crowded)

Well explain it
by studying
utility-maximizing
households and
profit-maximizing
firms
Land use, industry
clusters and population
distribution
Urban Problems: Crime,
Education,
Transportation, Housing

Who cares?

Businessmen: Where to
locate firms? How big the
market will be?
Real estate investors:
Patterns of land use and
population distribution
Policy makers: Policies
that combat urban
problems will increase the
vitality of cities, helping
them to grow.

Census block: Smallest geographical unit. Area bounded

by streets, property lines, political boundaries, etc.
Urban and Rural areas:

Urbanized Area (UA): Densely settled core of blocks and

surrounding blocks such that pop. density > 1000 people per
square mile & N>50,000
Urbanized Cluster (UC): Small version of urbanized area. Pop.
density > 500 people per square mile & 2,500<N

Rural area (RA): Not UAs or UCs

Source: Census Bureau

Metro(micro)politan areas (MSA).

Metropolitan area (MeA): Includes at least one urbanized area

(UA) such that N>50,000
Micropolitan area (MiA): Includes at least one urbanized cluster
(UC) such that 10,000>N>50,000

Principal City
Principal city is the largest place (municipality) in each
MSA.
Possibly many principal cities in a given MSA.
Minimum requirements

Population size: At least 250,000 people.

Employment size: At least 100,000 workers.

Economic City: Area with a relatively high population

density that contains a set of closely related and
economically integrated activities (flow of workers,
money, etc...).

Political City: Area over which a municipal corporation

exercises political authority, providing local government
services and collecting taxes.

Using CB definitions central city or municipality where a

municipal corporation exercises political authority and provides
local services.

Millions

Philippines Urban Population

50.00
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
-

Urban population

Percentage of urban population in

Philippines
49

2.5

48

2
annual %

% of total

47

46

1.5

45

44
43
42

Urban population (% of total)

Urban population growth
(annual %)

0.5
0

1970

2015

1. Tokyo, Japan

16.5

1. Tokyo, Japan

37.1

2. New York, United States

16.2

2. Jakarta, Indonesia

26.1

3. Shanghai, China

11.2

3. Seoul, South Korea

22.5

4. Osaka, Japan

9.4

4. Delhi, India

22.2

5. Mexico City, Mexico

9.1

5. Shanghai, China

20.9

6. London, England

8.6

6. Manila, Philippines

20.8

7. Paris, France

8.5

7. Karachi, Pakistan

20.7

8. Buenos Aires, Argentina

8.4

8. New York, United States

20.5

9. Los Angeles, United States

8.4

9. Sao Paulo, Brazil

20.2

10. Beijing, China

8.1

10. Mexico City, Mexico

19.5

Three basic conditions for the existence

of a city

Urban Production

Agricultural surplus

Transportation

Three facts of life (real

imperfections) that make cities
desirable
Imperfect factor mobility
(impending elimination of
natural resources advantages).
Imperfect input divisibility
(generating scale and
agglomeration economies).
Imperfect mobility of good
and services (its better to be
close to producers)

Three assumptions that make city formation unattractive

1. Equal productivity of all land and all workers
2. Constant returns to scale in transport and exchange
3. Constant returns to scale in production

Three assumptions imply

1. Equal productivity of all land and all workers
Everybody would be self-sufficient

2. Constant returns to scale in transport and exchange

Exchange would only cause transport costs, no benefits

3. Constant returns to scale in production

No benefits of clustering of production in factories

FIRST ASSUMPTION
Unequal productivity benefits = comparative advantage

What is the best thing to do for North?

Assume that
South switches 2
hours from shirt
to bread
production.

Trade in itself causes

no cities; families
could exchange
among themselves

Assumption 2: Economies of scale in exchange

Trading cities

Results of combination of productivity differences and scale

economies in transport
Long history (3000 BC)

Assumption 3: Economies of
scale in production

Sources of scale economies

in production

Factor specialisation (Adam

Smith)
Indivibisility of inputs
(minimum efficient scale)

Households buy the

product from the factory
if:

If economies of scale in
production exist

Concentration, in spite of high

land rents
Emergence of a market area

Factory price, + <

are total transport

costs
, costs of home
production

Distance from factory

Boundaries of market area

What happens when transport costs go down (e.g, due
to innovations)?

Market area

Total volume of demand

Number of households for which the price of the product is
less than
Area in which supplier underprices its competitors

Factory town

Workers want to economize on commuting costs

Concentration of workers near factory
Substitution of (expensive) land for consumption of other
goods
Higher population desity

Simple model

Economies of scale in production (due to fixed costs)

Economies of scale in transport
It explains cities that emerge during the industrial revolution

Summary
Cities emerge when:
1.Unequal productivity of land and workers
Some locations are more attractive than others
2.Increasing returns to scale in transport and exchange
Emergence of trading cities
3.Increasing returns to scale in production
Benefits of clustering of production in factories
Emergence of factory towns