CHAPTER1Introduction and Axiomsof Urban EconomicsCities havealways been thefireplaces of civilization, whencelighi and heat radiated out into the dark.THEODOREPARKERI'd ratherwakeup in themiddleof nowherethan in any cityonearth.-STEVEMCQUEEN1hisbookexplores theeconomicsofcitiesandurbanproblems.ThequotesfromParker and McQueen reflect our mixed feelings about cities.On the positive side,cities facilitate innovation,production, and trade, so they increase our standard ofliving.On thenegative sidecities are noisydirty,and crowded.Aswe'll seeinthfirstpartof thebook,firms andpeoplelocatein cities becausetheobvious costs ofbeinginacityaremorethanoffsetby subtlebenefitsof producingincloseproxim-ity to other firms and people.As we'll see later in the book,policies that combaturbanproblemssuchascongestion,pollution,andcrimearelikelyto increasethevitalityofcities,causingthemtogrowWHATISURBANECONOMICS?The discipline of urban economics is defined bythe intersection of geography andeconomics.Economicsexploresthe choicespeoplemakewhenresourcesarelim-ited.Households makechoices to maximizetheir utility,whilefirms maximizetheir profit.Geographers studyhow things arearranged across space,answeringthe question, Where does human activity occur? Urban economics puts economicsand geography together, exploring the geographical or location choices of utility-maximizing households and profit-maximizing firms.Urban economics also identi-fies inefficiencies in locationchoices andexamines alternative public policiestopromoteefficientchoicesUrban economics can bedivided intosixrelated areas that correspond to the sixparts of this book.1.Market forces in the development of cities.The interurban location deci-sions of firms and householdsgenerate cities of different size and economicstructure.We explore the issues of why cities exist and why thereare bigcities1
2Chapter1IntroductionandAxiomsofUrbanEconomicsandsmallones2.1Land use within cities.The intraurban location decisions of firms and house-holdsgenerate urbanland-usepatterns.Inmodern cities,employmentisspreadthroughout the metropolitan area, in sharp contrast to the highly centralizedcities of just 100 years ago.We explore the economic forces behind the changefrom centralized to decentralized cities.We also use a model of neighborhoodchoiceto explore the issueof segregation withrespectto race,income,andedu-cational level.3.Urban transportation.We explore some possible solutions to the urbancongestion problem and look at the role of mass transitin the urban trans-portation system.One issue is whether a bus system is more efficient than alight-rail system or a heavy-rail system like BART (San Francisco) or Metro(Washington)Crimeand public policy.Welook at theproblem of urban crime and show4.the links between crimeandtwo otherurbanproblems,povertyand loweduca-tionalachievement.5.Housing and public policy. Housing choices are linked to location choicesbecause housing is immobile.We'll discuss why housing is different from otherproducts and how housing policies work.Local government expenditures and taxes. Under our fragmented system of6.local government,most large metropolitan areashavedozens of local govern-ments,including municipalities, school districts, and special districts.In mak-ing location choices, households consider the mix of taxes and local publicgoods.WHATISACITY?An urban economist defines an urban area as a geographical area that contains alarge number of people in a relativelysmall area. In other words, an urban area hasa population density that is high relative to the density of the surrounding area.Thisdefinition accommodates urban areas of vastly different sizes,from a small townto a large metropolitan area.The definition is based on population density becausean essentialfeatureofanurban economyis frequentcontactbetweendifferenteco-nomic activities,which is feasible only if firms and houscholds are concentrated ina relatively smallarea.The U.S. Census Bureau has developed a variety of geographical definitionsrelevantto urban economics. Since much of the empirical work inurban economics is based on census data, a clear understanding of these definitions is importantThe appendix to this chapter provides the details of the census definitions.The keycensus definitions,some ofwhich are newforthe 2000 Census,are asfollows.Urban area: A densely settled geographical area with a minimum population1.of2,500people and aminimumdensityof500peoplepersquaremile.In2000,therewere3,756urbanareasintheUnitedStates2.Urban population:People living in urban areas.In 2000,the urban populationwas 79 percent of the total population.Metropolitan area:Acore area with a substantial population nucleus,together3.with adjacent communities that are integrated, in an economic sense, with thecore area.To qualify as a metropolitan area, theminimum population is 50,000
3Chapter1IntroductionandAxiomsofUrbanEconomicspeople.In 2000,there were 361metropolitan statistical areas in the United States.4.Micropolitanarea:Asmallerversionofa metropolitan area witha concentra-tionof10,000to50,000people.In2000,therewere559micropolitanstatisticalareas in theUnited States.5.1Principal city:The largest municipality in each metropolitan or micropolitanstatistical area.Amunicipality is defined as an area over which a municipal cor-poration exercises political authority and provides local government servicessuch as sewage service, crime protection, and fire protection.This book uses three terms to referto spatial concentrations ofeconomic activ-ity: urban area, metropolitan area, and city.These three terms, which will be usedinterchangeably,referto the economic city (an area with a relatively highpopulation density that contains a set of closely related activities), not the political cityWhen referring to a political city,we will use the term central city or municipality.WHY DO CITIESEXIST?This is the fundamental question of urban economics.People need land to producefood and otherresources,andliving indensecities separates us fromthelandwhere food is produced. As Bartlett (1998) points out, no other creatures in theanimal world form anything like cities.Herbivores such as wildebeests and bisonform larger herds but constantly migrate to fresh land to ensure a steady supplyof food.Coral is concentrated in stationary reefs,but ocean currents provide asteady supply of food to the stationary coral. Perhaps the closest thing to a cityin the natural world is a bee hive or an anthill.Eusocial insects such as bees andants form colonies with thousands of inhabitants,withhighly specialized castessoldier ants, drones, breeders, nurses, and cleanup crews.In contrast with humancities, these insect agglomerations are closed to non-natives and not based on vol-untaryexchangeCities exist becausehuman technology has created systems of production andexchangethat seemto defythenatural order.Three conditionsmustbe satisfiedforacitytodevelop.1.Agricultural surplus.People outside cities must produce enough food to feedthemselves and city dwellers.2.Urban production.Citydwellersmust producesomething-goodsorservices-toexchangeforfoodgrownby rural workers.3.Transportation for exchange.There must be an efficient transportation sys-tem to facilitate the exchange offood and urban products.Figure 1-I shows the share of people living in cities in the United States from1800 to 2010.Over this period, the urban share increased from 6 percent to 82 per-cent, a remarkable transformation that also occurred in other parts of the world.Aswe'll see in thenext three chapters of thebook,the transformation of a rural societyintoan urban one occurred becausetechnological advances increased the agricul-tural surplus (condition1),increased theproductivity of urban workers(condition2),and increasedtheefficiencyof transportation andexchange (condition 3).Figure 1-2 shows urbanization rates for different regions around the world,with projections for the year 2030.In 1950,urbanization rates were relatively lowinAfricaandAsia, andhighest in OceaniaandNorthAmerica.Between nowandthe year2030,urbanization rates are expectedto increase everywhere,with the larg-
Chapter1IntroductionandAxioms of Urban EconomicsFIGURE1-1Percent ofU.S.PopulationinUrbanAreas,1800-201090807060sasMalian302010.1200020101800182018401860188019001920194019601980FIGURE1-2UrbanizationRates,byWorldRegion,1950-20309080706050403020100LatinNorthAmericaWorldAfricaAsiaEuropeOceaniaand theAmericaCaribbean41.963.961.6口195029.814.717.452.474.147.237.237.573.475.477.4200077.360.252.954.180.58484.52030Percent in urban areasSource: United Nations: World Urban Prospects,2001 Revision
Chapter1Introduction and Axioms of Urban Economics5est increases in Africaand Asia.For the world as a whole,the urbanization rate was30percent in1950 and is expected to double by the year 2030.Table1-1shows the population figuresforthenation's 30largest metropolitanareas.TheNew York area tops the list,followed byLos Angeles,Chicago,Dallasand Philadelphia.The third column shows the percentage growth of each metro-politan area overtheperiod 2000to2005.Themost rapidly growingmetropolitanareas were in the South,the Mountain States, and the West. In three metropolitanareas-Detroit,Pittsburgh,and Clevelandpopulation decreasedover this period,continuing a two-decade trend of decreasing population.These metropolitan areasexperienced large losses inmanufacturingemployment.Table 1-2(page 6)shows the population figures for the world's largest metro-politan areas outside the United States.The table shows actual populations in 1975and2005,andprojectedpopulationsfortheyear2015.Eightmetropolitanareas,allofwhichareinthedevelopingworld,areexpectedtogrowbyatleast20percentover the 10-year period. In contrast, three cities in the developed world (Tokyo,Osaka,and Paris)are expected to grow slowly.In the United States,NewYork isexpected to grow 6 percent over the period, and Los Angeles is expected to grow7percent.TABLE1-1LargestMetropolitanAreas in theUnited States,2009PercentagePopulationChangeMetropolitan Areain20092000-2009Rank19,069,7964.1-NewYork-Northern New Jersey-Long Island, NY-NJ-PA234.1Los Angeles-Long Beach-Santa Ana, CA12,874,7979,580.5675.3Chicago-Naperville-Joliet, IL-IN-WI4Dallas-Fort Worth-Arlington, TX6,447.61524.954.9Philadelphia-Camden-Wilmington, PA-NJ-DE-MD5,968,2526724.4Houston-Sugar Land-Baytown, TX5,867,489Miami-Fort Lauderdale-Pompano Beach,FL5,547,05110.814.28Washington-Arlington-Alexandria,DC-VA-MD-WV5,476,241928.9Atlanta-Sandy Springs-Marietta, GA5,475,213104.588.6804.5Boston-Cambridge-Quincy,MA-NH-1.111Detroit-Warren-Livonia,MI4,403,43734.212Phoenix-Mesa-Scottsdale,AZ4,364,094134,317,8534.7San Francisco-Oakland-Fremont, CA1427.3Riverside-San Bemardino-Ontario, CA4,143,113153,407.84812.0Seattle-Tacoma-Bellevue, WA16Minneapolis-St. Paul-Bloomington, MN-WI3,269,81410.18.517San Dicgo-Carlsbad-San Marcos,CA3,053,7934.818St. Louis, MO-IL2,828,990192,747,27214.7Tampa-St.Petersburg-Clearwater,FL202,690,8865.4Baltimore-Towson,MD2117.1Denver-Aurora-Broomfield, CO2,552,195222.354,9573.1Pittsburgh, PA23Portland-Vancouver-Beaverton,OR-WA2,241,84116.3248.1Cincinnati-Middletown, OH-KY-IN2,171,896252,.127,35518.4Sacramento-Arden-Arcade-Roseville, CA262.62,091,286Cleveland-Elyria-Mentor,OH2726.6Orlando-Kissimmee, FL2.082,42128San Antonio, TX2,072,12821.112.629Kansas City,MO-KS2.067,5853038.3Las Vegas-Paradise,NV1,902,834Source: U.S. Census Bureau,"Table 1-Annual Estimates of the Population of Metropolitan and Micropolitan StatisticalAreas: April 1, 2000 to July 1, 2009 (CBSA-EST2009-01)."March 2010