Endogenous Spatial Externalities in Residential Location Theory

  • E. Werczberger


This essay contributes an interpretative discussion of residential location theory, focusing on one particular but central aspect of the subject: the role of spatial externalities.1 The essence of the city has been described as ‘a complex system of spatial interdependence between its constituent elements: households, businesses, industries, and public institutions’ (Papageorgiou, 1982). Neoclassical residential location theory has, from its beginning, emphasized one form of interdependence — access to the predetermined city center -analyzing it as the principal force affecting residential spatial structure. Yet distance to the CBD, or even to employment, explains only part of the variation in locational preferences and thus of housing prices. Other factors, most of which can be interpreted as external effects of urban activity, have been shown to be at least as important for residential location choice (see, e. g., Ball, 1979; Bartik and Smith, 1987). It suffices to mention location factors such as neighborhood prestige, industrial pollution and school quality. All of these have a significant effect on residential preferences and thus on the spatial differentiation of the urban system. Without their explicit consideration, processes such as the generation of ethnic ghettoes and gentrification are all but impossible to explain.


Neighborhood Effect Location Choice Residential Location Urban Economic Local Public Good 
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© Springer-Verlag Berlin · Heidelberg 1991

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  • E. Werczberger

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