Chapter -7 cities and congestion: the economics of Zipf`s Law

1. Chapter -7 cities and congestion: the economics of Zipf`s Law Group three - members: Galina Juan Vlastimil Mitiku

2. Introduction • The long run equilibrium by: • Complete agglomeration • Even spread • Depends on: • Initial distribution of MLF • A few structural parameters like: TC, ε, δ

3. Objectives • Analyzes the extension of the core model • Show how the inclusion of congestion changes the nature of LRE • Apply the core model with congestion to the ultimate empirical regularity of city- size distribution

4. Structure • How congestion can be introduced in the core model& how alerts the working of the model • City-size distribution to measure Zipf`s Law • The core model with congestion – use of simulation to city size distribution in accordance with the empirical facts of Zipf`s low • Conclusion

5. The relevance of urbanization & congestion • Urbanization is a highly relevant phenomenon • As world bank development indicators: 46% lived in urban area, out of this : 63.5% lived in small & medium sized cities(<1m),21.4% lived in large cities(1-5m); 15.1% in mega cities(>5m ) • middle &high income countries around 75% • Use to explain why in the reality the main spread force in the core model of GE • The major draw back of urban agglomeration to be in congestion such as EP, heavy usage of roads, communication channels& storage facilities • Specific example –traffic congestion- indicates Î in urban agglomeration went along with no. vehicles & per km

8. Congestion as an additional spreading force • Urban agglomeration driven by positive external economies give rise to external diseconomies of scale • EDS also arise from EP, or drawbacks of crowdedness in general • The direct consequence of congestion is straight forward since it provides incentive for Firms &MW • How it affects the balance between agglomeration & spread force

9. The modeling of congestion • The production structure of the core model can be easily adapted to introduce Congestion cost • Congestion costs for each firm depends on the over all size of location of production. • The size of the cityr is measured by the total no. of manufacturing firms, Nr in that city • The case of negative location specific external economies arising from congestion are relevant, in which 0<Τ<1

11. . • .Location decision has an impact on production function • Income equation is not affected by congestion parameters • How ever, congestions results from Wage rate & price index

12. To assess the relevance of congestion • Relay on simulation on two steps: • 1St illustrate relevance of in the two cities model-allow as to apply core model in congestion with empirical phenomenon of city –size distribution • 2Nd introduce many cities & congestion racetrack economy of the core model

13. Two location and congestion • To determine the direction of MLF & stability LE • Focus on the real wage of city 1 relative city2 • Plot the welfare achieved in two cities together • *Re-4 No congestion cost for SE is stable when high T, where as full agglomeration in either city is stable for low T • However, this is not satisfactory out come from the empirical point of views ,

14. Five different stages –for possibility of LE by using congestion 1. very high T, spreading is the only stable (& welfare maximizing) equilibrium 2. As T decrease still stable& allowing partial agglomeration rather than complete as SE 3. Complete agglomeration in either city is SE as T continue to fall 4. As T becomes very small , their impact relative to congestion is limited. 5.For very low T , spreading is again the only stable

15. From this three conclusions emerge 1st. the rage of possible LRE outcomes with congestion is wider than with out congestion 2nd . The phenomenon of partial agglomeration establishes the possibility of small and large economic centers as a stable LE out come 3rd . The welfare implication of the GE model have tendency to coincide with SLE

17. Many location &congestion • Two city model in congestion allow as for viability of small economic centers of Manufacturing extend to many cities • The results of such simulation with congestion: * many cities still have manufacturing production (MP) in the LE * these cities vary in economic size from empirical point of view * the final distribution of MP is well structured around two center of economic in cities 3&15 * the individual city economic size in LE largely depends on the relative place in the initial distributionof city sizes (cities20&23)