Urban Economics

Urban economics is a relatively new field of economics. It is the study of the spatial arrangements of households, businesses and capital in urban areas. It also deals with the phenomena which are related to these spatial arrangements and the public policy issues which stem from the interaction of urban economic forces.

The roots of urban economics can be found in the early 19th century, when cities were characterized by high transport costs for commodities, goods and people. Due to this, the production of manufactured goods was located near a central hub – a port or a railway, from which the products could be shipped to world markets. Low rates of pay and the high transportation costs also meant that workers had to live close to where they worked.

Thus, the transportation factors and the related economic phenomena began to shape the spatial structure of urban areas. Urban economists aimed to provide models of these interactions, and one of the firstwas provided by Johann Heinrich von Thunen (1783 – 1850), who established the relationship between land use and densities in a town where crops were exported to a central market. The early models used by urban economists emphasized the links between the transport costs of workers, the accommodation prices they faced, and the choices about housing expenses they made.

Transportation continued to exert its influence on urban structures, with technical improvements - mass transportation systems using railroads, particularly undergound or Metro systems in major cities - in the late 19th century resulting in cheaper means of workers' transportation. As a result, cities grew at fast rates and suburban areas expanded. This spurred the development of urban studies to consider urban poverty and the structure of urban sprawl. Many of the models appearing at this point treat the relationship between incomes and spatial decisions.

After the end of World War II in 1945, economic studies of several American cities, including New York, St. Louis, Pittsburgh, and Boston, were conducted, and economists were invited to handle the analytical work. At the same time, many of the 14,000 area development agencies chosen by the Committee for Economic Development in the 1950s started to run more limited studies of area problems. As a result, by the early 1960s, there was a spike of activity among economists interested in the sub-national economy. This activity was supported further by federal agencies like the Area Redevelopment Administration and the Housing and Home Finance Agency which sponsored local economic studies as a pre-condition for federal aid.

The problem of unemployment brought to the fore urban poverty issues, which challenged the traditional concepts of urban income distribution and urban labor market. Problems of urban development and the implementation of public policies also attracted the interest of urban economists. These included the issues of housing, land and real estate, but considered within the framework of the urban community.

Methodology of urban economics has evolved markedly since its inception. Location-theory models were the ones that marked the start of the new discipline and remained influential until the 1950s. In the 1960s and the 1970s the models were influence by behaviorism, so they focused on the role of local patterns of economic behavior on decisions about the location of economic activity. Later works developed urban models focused explicitly on the production and consumption factors which give rise to cities.

These models are usually based on the ideas of English economist Alfred Marshall (1842-1924) on the economics of localized industry, the work of Jane Jacobs (1916–2006) on urbanization economies, and on the theory of monopolistic competition and product diversity developed by Avinash Dixit (born 1944) and Joseph Stiglitz (born 1943). Urban economics has also benefited from the work of Wassily Leontief (1905–1999). The Russian-American economist has been famous for his research on how changes in one economic sector may have consequences for other sectors. His input-output model, which focused on trends in trade flow, won him a Nobel Prize in 1973.

Selected full-text books and articles on this topic

Making Cities Work: Prospects and Policies for Urban America
Robert P. Inman.
Princeton University Press, 2009
Emerald Cities: Urban Sustainability and Economic Development
Joan Fitzgerald.
Oxford University Press, 2010
The Dependent City Revisited: The Political Economy of Urban Development and Social Policy
Paul Kantor.
Westview Press, 1995
How Green Is the City? Sustainability Assessment and the Management of Urban Environments
Dimitri Devuyst; Luc Hens; Walter De Lannoy.
Columbia University Press, 2001
Innovative Cities
James Simmie.
Spon Press, 2001
The Economies of Central City Neighborhoods
Richard D. Bingham; Zhongcai Zhang.
Westview Press, 2001
Development and Planning Economy: Environmental and Resource Issues
P. A. Stone.
E & FN Spon, 1988
An Introduction to Geographical Economics: Trade, Location and Growth
Steven Brakman; Harry Garretsen; Charles Van Marrewijk.
Cambridge University Press, 2001
Librarian’s tip: "Geography in Regional and Urban Economics" begins on p. 23
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