Question

(1) Explain the Political Economy Approach to Urban Economics. What are its main contributions to the existing studies on the field of urban economics? What are its differences from the mainstream urban economics?

Answer 1

Urban economics is rooted in the location theories of von Thünen, Alonso, Christaller, and Lösch that began the process of spatial economic analysis. Economics is the study of the allocation of scarce resources, and as all economic phenomena take place within a geographical space, urban economics focuses on the allocation of resources across space in relation to urban areas. Other branches of economics ignore the spatial aspects of decision making but urban economics focuses not only on the location decisions of firms, but also of cities themselves as cities themselves represent centers of economic activity. Many spatial economic topics can be analyzed within either an urban or regional economic framework as some economic phenomena primarily affect localized urban areas while others are felt over much larger regional areas. Arthur O'Sullivan believes urban economics is divided into six related themes: market forces in the development of cities, land use within cities, urban transportation, urban problems and public policy, housing and public policy, and local government expenditures and taxes.

Market forces in the development of cities relate to how the location decision of firms and households causes the development of cities. The nature and behavior of markets depends somewhat on their locations therefore market performance partly depends on geography. If a firm locates in a geographically isolated region, their market performance will be different than a firm located in a concentrated region. The location decisions of both firms and households create cities that differ in size and economic structure. When industries cluster, like in the Silicon Valley in California, they create urban areas with dominant firms and distinct economies.

By looking at location decisions of firms and households, the urban economist is able to address why cities develop where they do, why some cities are large and others small, what causes economic growth and decline, and how local governments affect urban growth. Because urban economics is concerned with asking questions about the nature and workings of the economy of a city, models and techniques developed within the field are primarily designed to analyze phenomena that are confined within the limits of a single city.

Economic policy is often implemented at the urban level thus economic policy is often tied to urban policy. Urban problems and public policy tie into urban economics as the theme relates urban problems, such as poverty or crime, to economics by seeking to answer questions with economic guidance. For example, does the tendency for the poor to live close to one another make them even poorer? Urban transportation is a theme of urban economics because it affects land-use patterns as transportation affects the relative accessibility of different sites. Issues that tie urban transportation to urban economics include the deficit that most transit authorities have, and efficiency questions about proposed transportation developments such as light-rail. Megaprojects such as this have been shown to be synonymous with unexpected costs and questionable benefits.

Housing and public policy relate to urban economics as housing is a unique type of commodity. Because housing is immobile, when a household chooses a dwelling, it is also choosing a location. Urban economists analyze the location choices of households in conjunction with the market effects of housing policies. In analyzing housing policies, we make use of market structures e.g., perfect market structure. There are however problems encountered in making this analysis such as funding, uncertainty, space, etc.