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Economies and Diseconomies of Agglomeration

  • Conference paper
Urban Agglomeration and Economic Growth

Part of the book series: Publications of the Egon-Sohmen-Foundation ((EGON-SOHMEN))

Abstract

The paradox in urban economics over the last thirty years is that agglomeration economies (and diseconomies) are the driving force behind explanations of geographical concentration of economic activity and population within cities, yet remain something of a black box. There have been, as we shall see, several diverse attempts to measure these economies, but their precise role remains elusive. External economies of scale (both for individual industries and for economic activity as a whole) help to explain why economic activity (and population) concentrate in cities, while population-related scale economies subject to distance decay (threshold and range in central place parlance) account for the concentration of higher order consumer services (e.g., specialist hospitals, professional sports and cultural facilities, “commuter” universities) in larger urban centers. On the other hand, spatial concentration is eventually limited by offsetting diseconomies, ranging from pecuniary diseconomies (e.g., high land rents and wages) to traffic congestion and density-related pollution. The tension between these counteracting forces explains how fast metropolitan areas grow. More interesting, they largely account for the changes in metropolitan spatial structure over time. Why? Because, historically, both the agglomeration economies and congestion costs are generated within the central core, and as the economies begin to be overwhelmed by the congestion effects, firms (and households) can escape the consequences by relocating to decentralized locations.

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  1. Harry W. Richardson
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  1. Kiel Institute of World Economics, P.O. Box 4309, D-24100, Kiel, Germany

    Herbert Giersch (Past President) (Past President)

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Richardson, H.W. (1995). Economies and Diseconomies of Agglomeration. In: Giersch, H. (eds) Urban Agglomeration and Economic Growth. Publications of the Egon-Sohmen-Foundation. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-79397-4_6

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