Chapter 4 City Size

1. Chapter 4 City Size

2. Why Do Cities Vary in Size and Scope?

3. Utility and City Size • Localization and urbanization economies increase productivity & wage • Commute time increases with city size, decreasing leisure time

5. Locational Equilibrium Within a City • C: Differences in commute cost offset by differences in land rent • E: Equal shares of land rent, averaging $15 • Utility = Labor income + rental income - commute cost - rent paid

6. System of Cities in a Region • Divide fixed number of workers among cities in region • Six cities, each with 1 million workers • Three cities, each with 2 million workers • Two cities, each with 3 million workers

7. Figure 4-2 Cities May Be Too Large Along the negatively sloped portion of the utility curve, changes in population are self-correcting

8. Figure 4-2 Cities Are Not Too Small Along the positively sloped portion of the utility curve, changes in population are self-reinforcing

10. Specialized and Diverse Cities • Two types of cities are complementary • Many firms start in diverse city, which foster new ideas • Maturing firms relocate to specialized cities to exploit localization economies

11. A Model of Laboratory Cities • Firm gropes for ideal production process for new product by building prototypes, imitating other firms in the process • Once ideal process found, firm produces large quantity in a specialized city • Location for experimentation: Diverse city or series of specialized cities? • Diverse city: Relatively high prototype cost, given lack of localization economies • Specialized cities: Move from one city to another until ideal process found • Diverse city is more profitable if moving costs are relatively large

12. Example: The Radio Industry in New York • Early firms were “small, numerous, agile, nervous, and heavily reliant on subcontractors” • NYC provided a wide variety of intermediate inputs and workers • Once technology settled, firms relocated to economize on labor cost

13. Evidence of Laboratory Cities • French firms: 7 of 10 relocations from diverse to specialized city • Most innovative firms have highest frequency of moves from diverse to specialized

14. Differences in City Size: Introduction • Why do cities differ in size and scope? • Preview: Differences in localization & urbanization economies • Introduction of local goods amplifies differences in size

19. Local Goods and City Size • Some local goods (haircuts, groceries, pizza) sold in all cities, large & small • Per-capita demand large relative to scale economies in production • Local employment roughly proportional to population • Some local products (brain surgery, opera) sold only in large cities • Per-capita demand small relative to scale economies in production • Local employment concentrated in larger cities • Larger cities have wider variety: pizzas, haircuts, opera, brain surgery

22. The Rank-Size Rule • Rank = C / Nb • Rank-size rule holds if b = 1: Rank • N = C • Empirical results • Median estimate b = 1.09: Close to rank-size rule, but more even distribution • Definition of economic city: b = 1.02

23. The Puzzle of the Large Primary City

24. Reasons for Large Primary Cities • Trading and indivisibilities in import/export facilities • Neglect of intra-national transportation facilities • Politics: Dictators retain power by bribing likely rebels in large capital city (Roman circus)