From Neighborhoods to Nations: The Economics of Social Interactions

By Yannis M. Ioannides | Go to book overview

CHAPTER 5
Social Interactions and Urban Spatial
Equilibrium

5.1 INTRODUCTION

All city dwellers experience serendipitous urban encounters. One person mentions an event, another person links it to something else, a third speculates, and as a result a theory is developed that might influence those particular people’s actions and lives later on that day, and perhaps beyond too, and not just their economic lives. All this originates in random encounters facilitated by density.

In this chapter I build on the foundations laid down in chapters 2–4 to address social interactions when economic agents operate in actual physical space, measured by the distance between each other and to urban centers within cities. This allows me to draw a distinction from the treatment of individuals and firms, in chapters 3 and 4, respectively, where proximity is defined as group membership (or community). It also brings out one of the central attractive features of urban economics, that is, analysis of the urban spatial structure by means of elegant arguments that readily lend themselves to geometric depiction. I examine how the existence of direct social interactions among individuals and firms may enrich the explanation of urban spatial structure.

This chapter is organized as follows. First, I provide a benchmark, the canonical Alonso–Mills–Muth (Alonso 1964; Mills 1967; Muth 1969) spatial model of a city in its bare essentials, and examine its implications for urban density and the associated pattern of land prices in the case with a predetermined center, the central business district (CBD). All economic and noneconomic interactions are assumed to take place in the CBD, and all amenities are located there. The canonical model delivers sorting by observables when individuals differ in terms of income: individuals segregate by income.

Next, I assume that individuals and firms value interactions with others, interactions are costly, and there is no predetermined center. The different geometry of locational equilibrium does not show up in the location of the CBD itself because by exploiting symmetry one can conclude that activity will peak at a geometric center. Instead, it shows up in a characteristic spatial variation of density and land rents as we move away from the endogenous CBD.

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