Land for Worker Accommodation in a One-Industry Ribbon Town

Abstract

Extending Chap. 5, the model in this chapter incorporates land to accommodate workers . With land for residences, the possibility arises that workers have to commute to their place of work. The presence of commuting costs in turn means that monopoly profit is possible even in an export industry that might otherwise be thought to consist of firms that are price takers and hence perfectly competitive. This is because the presence of commuting costs implies that the marginal cost curve for Industry 1 is upward sloped. I consider three cases here for the export industry: centralization of location with direct compensation for worker commuting cost, centralization with indirect compensation, and decentralization. While this model is competitive, it raises the question of whether firms in Industry 1 would collude, perhaps using local government, to recoup the excess profit that now flows to landlords. The organization of the urban economy reflects the fact that otherwise either firms earn different profits or workers earn different wages. In each of the three cases, the land market of the urban economy serves to equilibrate by offsetting any differences. The model in this chapter envisages equilibrium in four markets: explicitly a single market for exports and a single market for residential land within the urban economy, and implicitly a market for labor and a market for entrepreneurial talent inside and outside the urban economy. This model is better than the Mills model in that it predicts when an industry will centralize or decentralize.