Introduction: This is a guest post from former blogger, Stuart Donovan, who now spends much of his time caring for his warrior princess, Alexandra, and tending to his voracious worm farm. And doing his PhD. In this post, Stuart summarises a course in urban economics he is giving in Amsterdam later this year. All Kiwis that attend receive a chocolate fish.
Many Greater Auckland topics have an urban economic dimension. The effect of the City Rail Link on employment in the City Centre, the effect of transport on where people choose to live and work, the effects of house prices on population levels and distribution, or the effect of the Auckland Harbour Bridge, all sit comfortably under the rubric of urban economics.
If you find these kinds of questions interesting, and you are footloose and fancy free from 6-20 July this year, then you may be interested in a summer school course that I am helping to deliver on the “The Economics of Urbanisation”. This course is part of the summer school programme run by Vrije Universiteit, Amsterdam, where I am currently studying towards a PhD.
Entry to the course is not restricted to economists; we welcome people from all disciplines and backgrounds, including professionals. Indeed, the course seeks to provide an intuitive introduction to key concepts in urban economics, highlighting challenges and opportunities for research and policy. This brings me to my favourite, and somewhat salient, economics meme.
Pray tell, what is an economic perspective? In my view, economics is simply a social science that seeks to explain people’s choices. Economists tend to approach choice problems by first developing models of individual behaviour (typically, people and firms), which can subsequently be compared to some hypothetical optimal outcome and/or applied to empirical data. No more, no less.
The key difference between other economic disciplines and urban economics is that, in the latter, people and firms can choose where to locate. Compare this to, say, the literature on international trade, where the location of firms and households—often represented in aggregate national level data—is usually fixed. Arguably, some of the most salient features of the modern economy arise not at the national level but instead eventuate at spatial scales that both smaller and larger. The clearly-evident core-periphery development pattern in Western Europe as seen from space, for example.
And when you allow people to choose their location, it quickly becomes apparent that—for your models to have real-world relevance—you need to also relax some assumptions that are common to many economic disciplines. Specifically, most people seem to value proximity, and be prepared to pay for it, even though proximity increases competition and prices for scarce resources, such as land. Fujita and Thisse (2013) put it rather formally in the following terms:
“If we want to explain the formation of cities or the existence of large differences between regions or nations in an otherwise homogeneous space, we must explicitly consider externalities or imperfect competition. In other words, to explain the most salient feature of the space-economy, that is, the presence of a large variety of agglomerations of economic agents, we have to appeal to non market interactions among agents or to imperfectly competitive markets.”
I mean, why on cod’s green earth would anyone choose to live in cold, dense city of Amsterdam?
While I’m working to update the syllabus from last year, in this year’s course I expect we will cover a similar range of topics, including but not limited to:
- Countries, regions, and cities — and the concepts that link/distinguish them. The goal is to provide a “spatial” perspective on economic patterns.
- Monocentric city model – which is a workhorse urban economics model that predicts, among other things, rents will fall with distance to the city centre, as compensation for higher transport costs. We also consider theoretical extensions and empirical evidence.
- Agglomeration economies – that is, the advantages and disadvantages proximity offers to firms and households. And how relative advantages have waned and, more recently, waxed over time, for example due to changes in technology and industry composition.
- Spatial equilibrium – which is a common “end-state” for urban economic models, such as the monocentric city model. In spatial equilibrium, prices (typically wages and rents) are assumed to adjust to compensate for local amenities. Spatial equilibrium explains, in part, why big cities and tropical islands offer high and low wages, respectively.
- Transport economics – building from the concept of generalised costs, we consider transport systems and their implications for the cost structures of different modes, highlighting how the allocation of public vis-à-vis private costs can impact individual mode choice. Discuss short and long run costs, congestion externalities, and economies of scale/density within the over-arching theme of space-efficiency.
- Technology and policy – which highlights the ongoing dance that exists between transport technologies and urban policy settings. We consider the historical examples of how the Netherlands got its cycle lanes, Moses’ motorways versus Jacobs’ urbanism, and road-pricing in Stockholm. Consider some emerging transport technologies, such as autonomous vehicles, drones, hyperloop, and e-scooters.
- Economic policy analysis – specifically benefit cost analysis as a decision-making tool, understanding consumer/producer surplus, and various valuation techniques. We apply these tools to evaluate the merits of converting Amsterdam’s (famed) Vondelpark into housing. Attend the course to find out the answer!
- Environmental sustainability – which considers merits of “compact cities” from an environmental perspective, with a focus on global emissions and local pollution. Highlights the important link between income elasticity and consumption patterns.
- Heterogeneity and sorting –factors that drive spatial sorting, including natural features, e.g. beaches; socio-economic attributes, e.g. air pollution and crime; individual preferences, e.g. for retail services; and individual endowments, e.g. wealth and ability.
- Social sustainability – considering concepts of equity and community. Introduce the famous “Tiebout model” (voting with their feet), consider arguments for/against Tiebout sorting, and implications of migration for urban governance. Highlight hard and soft barriers to mobility, such as restrictions on movement and land use controls.
Don’t think it’s all theoretical and/or hard work: The course contains no compulsory mathematics (some formal derivations are provided as notes) and during the 2-week course, students will participate in two organised excursions as well as have time to explore Amsterdam more generally.
And by the end of the two-weeks, you should be able to provide an urban economic perspective on the following types of settlement outcomes.
Disclosure: Stuart Donovan is employed as a transport consultant by this firm.