Economics 350: Regional and Urban Economics, Fall 2001

Lecture Outlines for Unit 1: What do cities do?                  Paper for Unit 1 DUE September 25, 2002

Lecture 0.1 — Introduction

Lecture 1.1 — Historical Functions, Externalities and Economies of Scale


Lecture 1.2 — Static (Equilibrium) Models of the City, Central Place Theory

Lecture 1.3 — Dynamic Models for explaining growth and decline, Agglomerations Economies


Lecture 1.4 — Theory and History: How our models help us understand the cities of the world.

Lecture W.1 — Organizing a writing project


Reading:

Mills and Hamilton: Chapter 1: The Nature of Urban Areas, pages 1-12; Chapter 2: Comparative Advantage and Regions; Chapter 3: Urbanization and Economic Growth in the United States. Chapter 17: Urbanization in Developing Countries. Especially pp. 433-445. Don’t worry about the formulas on p. 438.


Additional reading not listed on syllabus (but required, nevertheless)

Marshall, Alfred. 1890. Principles of Economics. London: MacMillan. Book IV: The Agents of Production, Chapter X: Industrial Organization Continued. The Concentration of Specialized Industries in Particular Localities. Can be found at “Books on Line” at http://digital.library.upenn.edu/books/

ONE of the following TWO:

Glaeser, Edward L., Hedi D. Kallal, Jose A. Scheinkman, Andrei Shleifer. 1992. Growth in Cities. The Journal of Political Economy , 100:6, Centennial Issue. (Dec., 1992), pp. 1126-1152. The article is available on J-Stor. To access J-Stor, go to http://library.gmu.edu/resources/databases.html

Chinitz, Benjamin. 1961. Contrasts in Agglomeration: New York and Pittsburgh. The American Economic Review . 51:2 (May), 279-289. The article is available on J-Stor. To access J-Stor, go to http://library.gmu.edu/resources/databases.html

And this is not a bad time to START reading Edge City by Joel Garreau. The Introduction and first Chapter, on New Jersey, discuss the economic forces driving the development and growth of the Edge City.

Lecture 0.1 – Introduction


             Reading: The syllabus.


I. What is a city – pages 2-7 in Mills.

             A. Dense population, limited area

             B. Non-agricultural, specialist, depends on trade (or tribute)

             C. Single labor market

             D. Political Unit – or units

             E. Statistical Definition of (U.S. Bureau of the Census)


II. What economics questions are posed by the city

             A. In general - the topics of this course:

                         1. Unit 1: Why do cities exist?

                         2. Unit 2: What do city neighborhoods do?

                         3. Unit 3: What determines city structure — where firms and people locate?

                         4. Unit 4: What determines quantity and quality of housing?

                         5. Unit 5: What do city governments do?

                         6. Unit 6: World cities.


             B. Some facts about U.S. cities we want to understand by the end of the course.

                         1. Growth – pp. 20-30.

                         2. Employment patterns – pp. 54-70.

                         3. Suburbanization – pp. 406-430.

                         4. Racial and ethnic patterns – pp. 176-194, 256-273.

5. Regional shifts – pp. 39 -51.


III. Mechanics of the Course

             A. Requirements – 5 papers, one final exam. See syllabus


             B. Contact information

1. E-mail: rmenes@gmu.edu

                         2. Office: Enterprise 328. 703-993-1156

                         3. Office Hours: Thursday afternoon, 3 - 4 pm.


             C. Class: Tuesdays 7:20-10:00

                         1. 2 lectures per class


             D. Reading: Will complement, NOT repeat, the class material.


Lecture 1.1 — Historical Functions, Externalities and Economies of Scale

Reading: Chapter 1 and chapter 3 pp. 54-56 on disease. Also a good time for a brief review of Econ 306 -- supply, demand, returns to scale, and externalities.


I. The functions of cities (pages 1-8, 21-30)

A. defense-Medieval walled city, original function of Wall Street in New York, Anasazi cliff dwellings

             B. religious center-Jerusalem, Mecca, Irish monastaries c. 600 CE

             C. government-Rome, Washington, DC

             D. trade-New Amsterdam (now known as New York) in 17 th century

             E. manufacturing-Manchester, England. Pittsburgh, PA, Gary, IN

             F. services-modern function of Wall Street in New York, education (Oxford, UK)


Most cities are, of course, a combination of these purposes, e.g. Washington, DC.


II. Economic Theories


             A. The assumptions of economic theory: supply, demand, and marginal decisions

             B. Scale Economies-scale, scope, and agglomeration economies

             C. Externalities-negative and positive

             D. Transportation costs


III. Static models of city existence


             A. Existence of an agricultural surplus

             B. Central Place Theory: scale economies + transport costs


IV. Dis-economies of scale (Why U.S. hasn’t collapsed into one big city)


             A. Natural resource variation

             B. history

             C. Density and internal transportation

             D. Disease, pollution, crime


Lecture 1.2 — Static (Equilibrium) Models of the City, Central Place Theory

Reading: Finish Mills & Hamilton, Chapter 1. Chapter 2. Chapter 3: pages 54-56

Marshall, Alfred. 1890. Principles of Economics. London: MacMillan. Book IV: The Agents of Production, Chapter X: Industrial Organization Continued. The Concentration of Specialized Industries in Particular Localities. Can be found at “Books on Line” at http://digital.library.upenn.edu/books/


I.           Static Theories of city function (pages 7-12)

A.The existence of an agricultural surplus

B.Central Place Theory

i.Economies of scale and scope, including agglomeration economies

ii.Transport costs

II.Limits to Urban size (pages 21-31 and 54-56) or Diseconomies of Scale

A.Historical (before c.1850)

i.History – cities tend to persist.

ii.Natural resource variation

iii.Construction technology — no steel, elevators, HVAC, plumbing

iv.Transportation — moving people, food, water, waste

v.Pollution, human waste, and disease.

vi.Political limits

B.Modern (1850-2001)

i.Construction

ii.Transportation (the RR, the car, electricity)

iii.Human preference for space, privacy

                         iv.        Public health, modern medicine

III.Predictions of Central Place Theory

A.With fixed technology: cities reach equilibrium sizes.

B.A system of cities.

C.How cities differ one from another: (Chap. 2)

i.Steel v. beer

ii.The colonial/early Federal merchant city

iii.The railroad/manufacturing city

iv.The auto city

IV.        Rents created by cities (economic “rent” = unearned profits)

A. attracts people, capital

             B. Who should “own” this wealth? who does?

             C. City politics, economics is about control of the “rents.”



Lecture 1.3 — Dynamic Models for explaining growth and decline, Agglomerations Economies

Reading: Mills and Hamilton page 20, and either

Glaeser, Edward L., Hedi D. Kallal, Jose A. Scheinkman, Andrei Shleifer. 1992. Growth in Cities. The Journal of Political Economy , 100:6, Centennial Issue. (Dec., 1992), pp. 1126-1152. The article is available on J-Stor at http://library.gmu.edu/resources/databases.html

Chinitz, Benjamin. 1961. Contrasts in Agglomeration: New York and Pittsburgh. The American Economic Review . 51:2 (May), 279-289. The article is available on J-Stor at http://library.gmu.edu/resources/databases.html

Glaeser, Edward L., Hedi D. Kallal, Jose A. Scheinkman, Andrei Shleifer. 1992. Growth in Cities. The Journal of Political Economy , 100:6, Centennial Issue. (Dec., 1992), pp. 1126-1152. The article is available on J-Stor at http://library.gmu.edu/resources/databases.html

Chinitz, Benjamin. 1961. Contrasts in Agglomeration: New York and Pittsburgh. The American Economic Review . 51:2 (May), 279-289. The article is available on J-Stor at http://library.gmu.edu/resources/databases.html

Garreau, Joel. 1991. Edge City: Life on the New Frontier. Introduction and Chapter 1: New Jersey . These chapters discuss growth in the edge city.

Jacobs, Jane. The Death and Life of Great American Cities.

I. Cities as Engines of growth

             A. Where new ideas are born

             B. Where firms are born

             C. Where people come to “make their fortune”


II. Agglomeration economies-knowledge spillovers and innovation (Jane Jacobs, Ed Glaeser)

             A. Information spillovers

             B. Markets for new goods

             C. combinations of people


III. Agglomeration economies-business to business services and infant firms (Ben Chinitz)

             A. Markets for new goods

             A. Small firms can purchase services — inputs, financing

             B. “O-ring” theory (Michael Kremer)


IV. Using variations across cities to test our theories about knowledge spillovers and infant firms (Glaeser, et al.)

             A. Jacobs, Chinitz — small firms, diverse economy

             B. Marshall, Arrow, Romer — large firms, specialized economy

             C. Porter — large firms, competitive economy

D. City-industry employment changes between 1956 and 1987 suggest that small firms and diverse local economy are good for growth (Glaeser)


VI. Conclusion — changes in cities over time can be explained by

             A. Exogenous changes that alter the static equilibrium (see the last lecture)

                         1. Natural resource shifts

                         2. Changes in transportation technology

                         3. Macroeconomic shifts and historic events

                         4. Changes in amenities (invention of A.C.)

             B. Characteristics that appear to foster endogenous growth

                         2. Diverse economy

                         3. Small firms

             C. Characteristics that appear to slow or halt growth, ceteris paribus

                         2. Highly concentrated economy

                         3. A small number of large firms



Lecture 1.4 — Theory and History: How our models help us understand the cities of the world.


I. Review of Static and Dynamic Models

A. Static model: one which, given fixed starting conditions, can be solved for fixed (equilibrium) end conditions.

      E.g. A supply and demand model of a market

B. A dynamic model is one which, given fixed starting conditions, will never reach a fixed end, but will continue to change over time.

      E.g. Money put into a bank account, A(t) = A 0 e rt .


II. Firm location (an application of our models of cities)

             A. Static factors: Close to resources, Close to labor, Close to customers

             D. Dynamic factors: close to where the ideas were born or first developed


III. Theories of city location (which spots on the globe are best for cities)

             A. transportation—ports, rivers, RR’s

             B. resources—food, water, resource using firms.

             C. Amenities — weather.

             D. Political entrepreneurs—city boosters.


IV. How have the importance of different kinds of economies of scale changed over time?

A. The Merchant City

B. The Frontier City

C. The Manufacturing City

D. The Service City

E. The Edge City - redefining the city


V. Cities and Rents – another class of models (and a transition to the next section, on city Government

A. Externalities

             B. Rents

             C. How to expropriate someone else’s rents?

D. “Urban Giants” — why do some countries have “mega-cities.” E.g. Paris, Tokyo, Mexico City.


And before writing your first paper, see lecture W.1, the first lecture of the Writing Unit.


Reading for writing:

Joseph Williams, Style: Toward Clarity and Grace, Preface and Chapter 1, pp. ix-xvii, 1-14.