Monday, August 24, 2015

Complementary ideas

I liked Cesar Hidalgo's Why Information Grows (but here is a dissenting view).

Information exchange is, of course, essential to any understanding of economics and cities. Cities offer transactions cost economies that facilitate networking, exchange, and growth. Hidalgo likes discussing networks. I often cite supply chains for goods and supply chains for ideas. Cities and their urban structures are collections (patterns) of supply chains.

The recognition of supply chains encompasses specialization, exchange, economizing on transactions costs, and the structure of cities. Supply chain parts are within any city, but parts may be beyond the city, in other places. All of this involves location choice. People in cities (in their roles as producers or consumers) want two things:  accessibility and space. Many complex trade-offs are in play. Cities produce floor space. If all goes well, they do so in places and configurations and at prices that make it possible for large numbers of private activities to succeed. Cities are also seen as places where we can find transaction cost economies. These facilitate the formation of any supply chain. They also influence the nature of any chain; some supply chains (or their parts) are within firms and some are beyond the firm; likewise some are nearby and some are not, all reflecting the “make or buy” challenges faced by managers and owners of firms. These choices are informed by interaction costs as well as location choice costs.

Knowledge and information are each essential. How do you get one from the other? The right networks have to emerge. Out-of-equilibrium systems are jostled. These are interacting supply chains for things and supply chains for ideas. Jane Jacobs covered all this. I do not recall that Hidalgo cited her. He does link to Granovetter, Putnam, Fukuyama and Hayek.  All of these thinkers contribute complementary ideas that add our understanding of cities.