Decline in transportation cost, at least for the shipment of goods.

Glaeser et al. documents the decline transportation cost, mainly due to technological advancements in the transport industry and reduced reliance fixed infrastructure transport (rail and water). However, there has been a rising cost of moving people within cities mainly due to congestion. Glaeser et al. elaborates on two major ways in which cities are changing. Firstly, the reduction in transportation cost for goods has allowed cities to change their primary functions and locations. Modern cities facilitate interaction (contact between people), which leaves little reason for cities to be near natural resources or natural transport hubs. Consumer preference has transformed cities are more likely to be located in pleasant climates and locations where governments are friendly. The second way in which cities are changing, according to Glaeser et al. is internal to the city. The automobile has created sprawl and reduced tendencies towards a single city center, a feature of the twenty first century. Glaeser et al. also notes that both of the classic of urban economics, the Alonso-Muth-Mills model and the Krugman-Fujita-Thisse new geography (see below for short summary), need updating. Whilst both frameworks are relevant to the characterizations of the city of the past, a new regional model, without centers and transport cost for goods will better capture the future of the city.

Glaeser et al. hopes that such regional models would be built around these basic elements:

• Productivity would be a function of agglomeration because there are gains from people being able to interact
• Key transport mode – the automobile –travels much faster on highways that on city streets and is subject to congestion effects
• Physical output is generally relatively costless to ship
• Even though output is costless to ship, people produce services that require face-to-face interaction
• Land is heterogeneous and some places are nicer that others

Alonso-Muth-Mills Model vs. Krugman-Fujita-Thisse Model

The Alonso-Muth-Mills Model is a model referred by Glaeser et al. combining classic homocentric urban models, are consistent with a world where people walk and take public transportation (Glaeser et al). Central business districts (CBD) can be considered as the hub for transportation technologies. Public transportation brings people to the hub and people walk from that point to their work places and use their feet to interact during the workday. The workers’ physical output then gets shipped from the hub to consumers using rail and water transport (Glaeser et al). To that degree, a homocentric model, where firms are extremely close to one another in the central business district, is natural when thinking about cities built around feet and trains. The Krugman-Fujita-Thisse Model is a model referred by Glaeser et al., where the hierarchy of cities was dictated by transportation. Locations of firms are determined through the minimization of cost, assuming that production cost are the same everywhere, transportation cost will dictate the choice of location. The new regional economics is built around fixed cost technologies with substantial transport costs. Population is anchored by a desire to be in close proximity to natural resources (Glaeser et al).

Implications of declining transport costs for goods

Implication 1: People are no longer tied to natural resources

Implication 2: Consumer-related natural advantages are becoming more important

Implication 3: Population is increasingly centralized in a few metropolitan regions

Implication 4: People are increasingly decentralized within those regions

Implication 5: High-density housing and public transportation are becoming increasingly irrelevant

Implication 6: Services are in dense areas; manufacturing is not

Implication 7: The location of manufacturing firms is not driven by proximity to

Customers or suppliers, the location of service firms are determined by proximity.

Implication 8: Density and education go together

Implication 9: Productivity will decline as congestion exceeds some threshold level?

Questions:

• How will the rising cost in fuel and inevitable the depletion of oil has an effect on this?

Reference:

Glaeser, E., Kohlhase, J. 2003, Cities, Regions and the Decline of Transport Costs, Harvard Institute of Economic Research, Online (54p)

11. Infrastructure 17th May, 2008 10:52:10   [#] 

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