Land for Worker Accommodation in a Multi-industry Ribbon Town

Abstract

What does a model that sees the city as a producer of multiple goods tell us about the organization of cities in equilibrium when workers demand land for accommodation? The city is simple: a ribbon of land with Point O at one end. The city potentially has four industries: two that manufacture for export, one that produces an intermediate good , and one that retails to residents. All firms are price takers in all markets. In Industries 1 and 2, export price is given. In Industries 3 and 4, free entry of firms drives price down to marginal cost . Industry 4 imports a good then sold to local consumers at a mark-up . In each industry, labor is the only factor of production . The model assumes all four industries have constant returns to scale. The model assumes an open economy where the supply of labor locally is perfectly elastic . The model in this chapter assumes that firms in Industry 3 locate adjacent to firms in Industry 2 (who require the intermediate good). The model in this chapter assumes that firms in Industry 4 locate adjacent to other firms on the basis that workers shop near their place of work to save on trip costs. Profits, land rents, transportation costs, and imports are treated as leakages from the city’s economy. Export prices are exogenous, but quantities are endogenous. The model in this chapter envisages equilibrium in several markets: a market for exports in each industry, a market for retail goods in the city, a single market for residential land within the city, and a market for labor inside and outside the city. Because workers now occupy space, the model in this chapter must incorporate commuting costs and the tradeoffs between centralization and decentralization. Ignoring knife-edge and null solutions, there are 12 possible configurations of land use within the city.