Urban models and urban centers

Following Milton Friedman's suggestion that economic models be judged not by the plausibility of their assumptions, but by their ability to predict, Queen Elizabeth asked some of LSE's finest why they did not see the Great Recession coming. Ouch!

In "The growth of cities," Gilles Duranton an Diego Puga make use of urban economists' "monocentric" model of cities for the obvious reason that it is analytically tractable. Citing the Glaeser and Kahn (2001) finding that "In 1996 only about 25% employees in US metropolitan areas worked within five km of the CBD ..." (p. 5), Duranton and Puga go on to say that there is, nonetheless, "strong empirical support for the existence of declining gradients of land and housing prices, population density and intensity of construction as predicted by the monocentric model." There are of course many other assumptions (homogenous labor and capital stock!) that cause concern.

I often cite Bumsoo Lee's work on the location of jobs in U.S. metropolitan areas in this connection (the paper has my name on it but this part is Bumsoo's work).  They key table is reproduced below. 

There are always debates on how "sub-centers" "central business districts, CBD's" etc. should be defined and delineated. Bumsoo tested two approaches and came up with roughly similar results. Average "big-city" CBD employment was either 7.1% or 10.8% of the metropolitan total. Take your pick.

Stick to the largest MSAs for the moment. Bumsoo found that 15% of the jobs were in subcenters and 78% were "dispersed". Let's talk about measured gradients emanating from the CBD. The measured density (for example) at any location is the vertical addition (density on the vertical axis, distance from the center on the horizontal) of all of the (unseen less easily seen) gradients from all the centers that reach to that location. Ascribing all of the influence to the main center is a mistake.  In work that some of us did some years ago, we found strong influence through the LA region from a very flat gradient emanating from LAX.

But a bigger point has to do with the fact that the survival (and growth) of any and all centers has to do with the agglomeration opportunities they offer.  Agglomeration opportunities are apparently available at many places outside the traditional center.

Employment shares by location type in 2000

MSA Name	Employment	No. of	Employment			Share of employment (%)
		Sub-	CBD	Sub-	Dis-	All	CBD	Sub-	Dis-
		centers		centers	Dispersed	centers		centers	Perse
			A	B	C
New York	9,418,124	33	937,055	1,057,297	7,423,772	21.2	9.9	11.2	78.8
Los Angeles	6,716,766	53	190,100	1,931,988	4,594,678	31.6	2.8	28.8	68.4
Chicago	4,248,475	17	297,755	504,732	3,445,988	18.9	7.0	11.9	81.1
Washington	3,815,240	16	283,341	449,488	3,082,411	19.2	7.4	11.8	80.8
San Francisco	3,512,570	22	205,553	849,021	2,457,996	30.0	5.9	24.2	70.0
Philadelphia	2,780,802	6	239,735	125,190	2,415,877	13.1	8.6	4.5	86.9
Boston	2,974,428	12	238,092	239,257	2,497,079	16.0	8.0	8.0	84.0
Detroit	2,508,594	22	129,845	557,776	1,820,973	27.4	5.2	22.2	72.6
Dallas	2,565,884	10	126,010	404,365	2,035,509	20.7	4.9	15.8	79.3
Houston	2,076,285	14	165,525	432,101	1,478,659	28.8	8.0	20.8	71.2
Atlanta	2,088,215	6	166,946	223,168	1,698,101	18.7	8.0	10.7	81.3
Miami	1,623,892	6	121,045	243,970	1,258,877	22.5	7.5	150.	77.5
Seattle	1,745,407	7	163,051	207,542	1,374,814	21.2	9.3	11.9	78.8
Phoenix	1,463,581	9	104,417	189,071	1,170,093	20.1	7.1	12.9	79.9
3 million and plus		17.0				22.1	7.1	15.0	77.9
1 to 3 million		2.6				17.8	10.8	7.0	82.2
half to 1 million		0.9				17.4	12.2	5.2	82.6

Source: Bumsoo Lee (2007)

ADDED

More on CBD employment.

Cities and the evolution of transactions costs

In her big-themed and important Bourgeois Dignity: Why Economics Can't Explain the Modern World, Deidre McCloskey covers a lot of ground. She takes on most of received economic growth theory; she takes a strong stand in favor of culture over institutions as an explanation of the "hockey stick" bend in economic well being that we often simply refer to as the "industrial revolution" and she evokes Austrian economists' emphasis of entrepreneurial discovery as an important force in economic growth explanations.

The author also offers a schematic (her Figure 4, p. 409) that collects most her her ideas on a single page. (The diagram is too complex to display here).  But I think she misses some essentials when she mentions on page 406 that cities simply belong to the "background conditions" that were always around.

Having noted the importance of entrepreneurial discovery, she has to wonder how that happens. Urban Economists (see, for example Ed Glaeser's Triumph of the City) now almost routinely cite cities as the places where the interactions by which ideas are discovered and incubated take place. My quibble with the standard view is that "density" is too often used as the convenient proxy for how all of this happens.  Rather, I believe, entrepreneurs (and everyone else) seek propitious locations from which they expect they can best execute all of the activities they are involved in. Each of us participates (as buyer and/or as seller) in numerous supply chains. I include supply chains for ideas. Seeking and finding propitious sites for all of this activity is actually the way we deal with transactions costs. Modern cities (with flexible enough land markets) and modern networks (electronic and other) represent where we are in the ongoing evolution of transactions costs.

A schematic that does it for me is one suggested by Cowen and Tabarrok (below). They place "organization" at the center. But organization can be many things.  I suggest that spatial organization belongs side-by-side with industrial organization. When the make-or-buy decisions are made, where to make or buy are made concurrently (nearby or not? how nearby?).  The evolution of transactions costs affects all of them.

ADDED

Cato Unbound has a nice exchange re the "sharing economy."  Efforts to lower transactions costs now getting a powerful boost from app technology.