33 Spatial Economics
Agglomoration Economics
(Ongoing Research Programme)
33.1 Urban Economics
When and why did the expertise associated with economics as an academic discipline become so highly valued in the world of public policy?
The embedding of agglomerationism within the thinking of policy-makers and governmental institutions provides a fascinating example of a broader shift towards the growing impact of economic expertise, and indeed of individual economists, on policy-making.
This focus sits within a wider field of study which is interested in the complex roles that economists have at times played – as public intellectuals, policy experts and academic specialists. How different kinds of analytical tools and a particular style of economic reasoning made their way into the world of elite decision-making is a major theme of interest for many historians and social scientists. So too is the related question of how quantification (testable theoretical hypotheses, measurement technique and indicators, as well as decision-models) has over the last few decades gained ascendancy in policy circles.
History of Urban Policy Expertise
33.1.1 Expertise
ExpertiseunderPressure
What is the role of experts in understanding social change? Expert judgment today is both intensely sought out, across private and public spheres, and also intensely criticised and derided with well-publicised failures to predict various high profile social and natural phenomena. Does the problem lie with the very idea that objective expertise about complex processes is attainable? Or does it stem from the way that expert judgment is developed and communicated? Or, perhaps it reflects the diminished standing of experts and expert knowledge in democratic and pluralistic societies?
To explore these questions, we propose three case studies in which expert judgment is both consequential and controversial. They are the UK Government’s emergency response, the use of agglomeration theory in city planning, and deep philosophical controversies about the possibility and objectivity of social science. These cases differ in scope and focus but they enable us to analyse four distinct features of legitimate expertise: sensitivity to temporal scale, translatability in space, ambivalence about precision, and moral responsibility. The overarching goal of the project is to establish a broad framework for understanding what makes expertise authoritative, when experts overreach, and what realistic demands communities should place on experts.
33.1.2 Trusting Science
Bennett
Trust is necessary for many kinds of policy, particularly where that policy requires citizens to comply with rules that come at significant cost, and coercion alone would be ineffective. What is distinctive about our pandemic policies is that they depend not just on public trust in policy, but public trust in the science that we are told informs that policy.
When public policy claims to follow the science, citizens are asked not just to believe what they are told by experts, but to follow expert recommendations.
While ministers defer to scientists, those same scientists have been eager to point out that their role is exclusively advisory.
We are still being asked by the government to trust in recommendations provided by experts, even if the government is not being led by evidence in the way it would have us believe. The communications strategy may not be honest.
Public trust in science is both a necessary and desirable feature of an effective public health response to the pandemic. But it is desirable only insofar as it is well placed trust. What makes trust in experts reasonable, when it is?
A perceived threat to knowledge about a range of basic facts that most of us don’t have the resources to check for ourselves.
If an expert tells me that something is the case this is enough reason for me to believe it too, provided that I have good reason to think that the expert in question has good reason to believe what they tell me.
Is it still reasonable to trust science when it doesn’t just provide policy-relevant facts, but leads the policy itself?
Knowledge regarding the relevant facts might not reliably indicate ability to reason well about what to do in light of the facts.
Well-placed trust in the recommendation of an expert is more demanding than well-placed trust in their factual testimony.
A good reason for an expert to think I should do something is not necessarily a good reason for me to do it. This is because what I value and what the expert values can diverge without either of us being in any way mistaken about the facts of our situation.
One helpful measure to show the public that a policy does align with their interest is what is something called expressive overdetermination: investing policy with multiple meanings such that it can be accepted from diverse political perspectives. Reform to French abortion law is sometimes cited as an example of this. After decades of disagreement, France adopted a law that made abortion permissible provided the individual has been granted an unreviewable certification of personal emergency. This new policy was sufficiently polyvalent to be acceptable to the most important parties to the debate;
A second helpful measure, which complements expressive overdetermination, is to recruit spokespersons that are identifiable to diverse groups as similar to them in political outlook. This is sometimes called identity vouching. The strategy is to convince citizens that the relevant scientific advice, and the policy that follows that advice, is likely not to be a threat to their interests because that same consensus is accepted by those with similar values.
Expressive overdetermination and identity vouching are ways of showing the public that a policy is in their interests. Whether they really are successful at building public trust in policy, and more specifically in science-led policy, is a question that needs an empirical answer. What I have tried to show here is that we have good theoretical reasons to think that such additional measures are needed when we are asking the public not just to believe what scientists tell us is the case, but to comply with policy that is led by the best science.
Public trust in science comes in at least two very different forms: believing expert testimony, and following expert recommendations. Efforts to build trust in experts would do well to be sensitive to this difference.
[Bennett - Trusting the experts take more than belief(Blog Post)]https://hscif.org/trusting-the-experts-takes-more-than-belief/)
33.2 History of Urban Economics
Cherrier and Rebours
The field of ‘Urban Economics’ is an elusive object. That economic phenomena related to the city might need a distinctive form of analysis was something economists hardly thought about until the early 1960s. In the United States, it took a few simultaneous scholarly articles, a series of urban riots, and the attention of the largest American philanthropies to make this one of the hottest topics in economics. The hype about it was, however, short-lived enough so that, by the 1980s, urban economics was considered a small, ‘peripheral’ field. It was only through the absorption into a new framework to analyze the location of economic activities – the ‘New Economics Geography’ – in the 1990s that it regained prominence.
Understanding the development of urban economics as a field, or last least the variant which originated in the US and later became international, presents a tricky task. This is because the institutional markers of an academic field are difficult to grasp. A joint society with real estate economists was established in 1964, and a standalone one in 2006; a journal was founded in 1974, with an inaugural editorial which stated that: “Urban economics is a diffuse subject, with more ambiguous boundaries than most specialties. Situated within a master-discipline (economics) that is often described as exhibiting an articulated identity, clear boundaries with other sciences and strict hierarchies, urban economics is an outlier.
There is, however, one stable and distinctive object that has been associated with the term ‘urban economics’ throughout the 1970s, the 1980s, the 2000s and the 2010s: the Alonso-Muth-Mills model (AMM). It represents a monocentric city where households make trade-offs between land, goods and services, and the commuting costs needed to access the workplace. The price of land decreases with distance from the city center. The model was articulated almost simultaneously in William Alonso’s dissertation, published in 1964, a 1967 article by Edwin B. Mills, and a book by John Muth published in 1969. This trilogy is often considered as a “founding act” of urban economics.
Agglomeration
In 1956, William Alonso moved from Harvard, where he had completed architecture and urban planning degrees at the University of Pennsylvania. He became Walter Isard’s first graduate student in the newly founded department of “regional science.” He applied a model of agricultural land use developed 150 years earlier by the German economist Johann Von Thünen to a city where all employment is located in a Central Business District. His goal was to understand how the residential land market worked and could be improved. His resulting PhD, Location and Land Use, was completed in 1960. Around that time, young Chicago housing economist Richard Muth spent a snowstorm lockdown thinking about how markets determine land values. The resulting model he developed was expanded to study population density. And a book based on it was published a decade later: Cities and Housing. Drafts of Alonso and Muth’s work reached inventory specialist Edwin Mills in 1966, while he was working at the RAND corporation, and trying to turn models describing growth paths over time into a model explaining distance from an urban center. His “Aggregative Model of Resource Allocation in a Metropolitan Area” was published the next year.
This new set of models immediately drew attention from a wide array of transportation economists, engineers and geographers concerned with explaining the size and transformation of cities, why citizens chose to live in centers or suburbs, and how to develop an efficient transportation system. The economists included Raymond Vernon and Edgar Hoover, whose study of New York became the Anatomy of the Metropolis; RAND analyst Ira Lowry, who developed a famous spatial interaction model; spatial and transportation econometrician Martin Beckman, based at Brown; and Harvard’s John Kain, who was then working on his spatial mismatch hypothesis and a simulation approach to model polycentric workplaces. Through the early works of Brian Berry and David Harvey, quantitative urban geographers also engaged with these new urban land use models.
But the development of a new generation of models relying on optimization behavior to explain urban location was by no mean sufficient to engender a separate field of economics. Neither Alonso, who saw himself as contributing to an interdisciplinary regional science, nor Muth, involved in Chicago housing policy debates, cared much about its institutionalization. But both were influenced and funded by men who did. Muth acknowledged the influence of Lowdon Wingo, who had authored a land use model. Together with Harvey Perloff, a professor of social sciences at the University of Chicago, they convinced the Washington-based think-thank Resource for the Future to establish a “Committee for Urban Economics” with the help of a grant by the Ford Foundation. The decision was fueled by urbanization and dissatisfaction with the urban renewal programs implemented in the 1950s. Their goal was to “develop a common analytical framework” through the establishment of graduate programs in urban economics.
Their agenda was soon boosted by the publication of Jane Jacobs’ The Death and Life of Great American Cities, and by growing policy interest in the problems of congestion, pollution, housing segregation and ghettoization, labor discrimination, slums, crime and local government bankruptcy, and by the stream of housing and transportation acts which were passed in response to these. The Watts riots, followed by the McCone and Kerner commissions, acted as an important catalyst. The Ford Foundation poured more than $ 20 millions into urban chairs, programs and institutes through urban grants awarded to Columbia, Chicago, Harvard and MIT in 1967 and 1970. The first round of funds emphasized “the development of an analytical framework”, and the second sought “a direction for effective action.” As a consequence of this massive investment, virtually every well-known US economist turned to urban topics.
At MIT, for instance, Ford’s money was used to set up a two-year “urban policy seminar,” which was attended by more than half of the department.The organizer was welfare theorist Jerome Rothenberg, who had just published a book on the evaluation of urban renewal policies. He was developing a large-scale econometric model of the Boston area with Robert Engle and John Harris, and putting together a reader with his radical colleague Matt Edel. Department chair Carry Brown and Peter Diamond were working on municipal finance. Robert Hall was studying public assistance while Paul Joskow examined urban fire and property insurance. Robert Solow developed a theoretical model of urban congestion, published in a 1972 special issue of the Swedish Journal of Economics, alongside a model by taxation theorist Jim Mirrlees investigating the effect of commuter and housing state tax on land use. Solow’s former student Avinash Dixit published an article modeling a tradeoff between city center economies of scale and commuting congestion costs in another special issue on urban economics in the Bell Journal the next year. A survey of the field was also published in the Journal of Economic Literature, just before the foundation of the Journal of Urban Economics in 1974.
Segregation
But the publication of a dedicated journal, and growing awareness of the “New Urban Economics” was not the beginning of a breakthrough. It turned out to be the peak of this wave. On the demand side, the growing policy interest and financial support that had fueled this new body of work receded after the election of Richard Nixon and the reorientation of federal policies. On the supply side, the mix of questions, methods and conversations with neighboring scholars that had hitherto characterized urban economics was becoming an impediment. More generally, the 1970s was a period of consolidation for the economics profession. To be considered as bona fide parts of the discipline, applied fields needed to reshape themselves around a theoretical core, usually a few general equilibrium micro-founded workhorse models. Others resisted, but could rely on separate funding streams and policy networks (development and agricultural). Urban economics was stuck.
Policy and business interest was directed toward topics like housing, public choice and transportation. And, combined with the growing availability of new microdata, micro-econometrics advances, and the subsequent spread of the personal computer, this resulted in an outpouring of applied research. Computable transportation models and real estate forecasting models were especially fashionable.
On the other hand, a theoretical unification was not in sight. Workhorse models of the price of amenities, the demand for housing, or suburban transportation, were proposed by Sherwin Rosen, William Wheaton and Michelle White, among others. But explanations of the size, number, structure and growth of cities were now becoming contested. J. Vernon Henderson developed a general equilibrium theory of urban systems based on the trade-off between external economies and diseconomies of city size, but in these agglomeration effects did not rely on individual behavior. Isard’s former student Masahita Fujita proposed a unified theory of urban land use and city size that combined externalities and the monopolistic competition framework pioneered by Dixit and Joseph Stiglitz, but without making his framework dynamic or relaxing the monocentric hypothesis. At a point when there was growing interest in the phenomenon of business districts – or Edge cities as journalist Joël Garreau called them, this was considered a shortcoming by many economists. General equilibrium modelling was rejected by other contributors, including by figures like Harry Richardson, and a set of radical economists moving closer to urban geographers (such as David Harvey, Doreen Massey and Allen Scott) working with neo-Marxist ideas.
Renewal
In the 1990s, various trends aimed at explaining the number, size, evolution of cities matured and were confronted to one another. In work which he framed as contributing to the new field of “economic geography,” Krugman aimed to employ his core-periphery model to sustain a unified explanation for the agglomeration of economic activity in space. At Chicago, those economists who had spent most of the 1980s modeling how different types of externalities and increasing returns could help explain growth – among them Robert Lucas, José Scheikman and his student Ed Glaeser – increasingly reflected on Jane Jacob’s claim that cities exist because of the spillover of ideas across industries which they facilitate. Some of them found empirical support for her claim than for the kind within-industry knowledge spillovers Henderson was advocating.
Krugman soon worked with Fujita to build a model with labour mobility, trade-offs between economies of scale at the plant level and transportation costs to cities. Their new framework he was adamant to compare to Henderson’s general equilibrium model of systems of cities. He claimed that their framework enabled the derivation of agglomeration from individual behavior and could explain not only city size and structure, but also location. In his review of Krugman and Fujita’s 1999 book with Venables, Glaeser praised the unification of urban, regional and international economics around the microfoundations of agglomeration theory. He also contrasted Krugman’s emphasis upon transportation costs – which were then declining – with other frameworks focusing on people’s own movement, and began to sketch out the research program focused on idea exchanges that he would develop in the next decades. He also insisted on the importance of working out empirically testable hypotheses.
The “New Economic Geography” was carried by a newly-minted John Bates Clark medalist who had, from the outset, promised to lift regional, spatial and urban economics from their “peripheral” status through parsimonious, micro-founded, tractable and flexible models. It attracted a new generation of international scholars, for some of whom working on cities was a special case of contributing to spatial economics. In the process, however, olders ties with geographers were severed, and questions that were closely associated with changing cities, like the emergence of the digital age, congestion, inequalities in housing, segregation, the rise of crime and urban riots, became less central to the identity of this field. The field lost some sort of autonomy.
Most recently, Glaeser’s insistence that urban models need to be judged by their empirical fit may be again transforming the identity of urban economics. The shift is already visible in the latest volume of the series of Handbooks in Urban and Regional Science. Its editors (Gilles Duranton, Henderson and William Strange) explain that, while its previous volume (2004) was heavily focused on agglomeration theory, this one is “a return to more traditional urban topics.” And the field is now characterised not in terms of a unified, theorical framework, but with reference to a shared empirical epistemology about how to develop causal inferences from spatial data.
Overall, the successive shifts in urban economists’ identity and autonomy which we describe here, were sometimes prompted by external pressures (urban crises and policy responses) and sometimes from internal epistemological shifts about what counts as “good economic science.” A key development in the 1970s was the unification around general equilibrium, micro-founded models. It is widely held that the profession is currently experiencing an “applied turn” or a “credibility revolution”, centered on the establishment of causal inference (gold) standards. How this will affect urban economics remains unclear.
33.2.1 Jane Jacobs
Considering her contribution to economic theory may seem counter-intuitive. In addition to lacking academic credentials, she took little interest in engaging the discipline of economics. Her models were neither formal nor developed in reference to existing models. And her view of economic theory in general was dismissive. In the opening chapter of Cities and The Wealth of Nations, “Fool’s paradise,” Jacobs lays out a history of economic thought and arrives at this sweeping conclusion: “Choosing among the existing schools of thought is bootless. We are on our own.” The same dismissive stance extended to academic institutions, as she refused numerous honorary degrees from various Universities.
Jacobs Externalities
Some economists picked up on her insights. A type of economic externality has been derived from her detailed historical accounts of new economic activities arising from urban diversity. Chicago and Harvard urban economists Glaeser, Kallal, Scheinkman, and Shleifer credited Jacobs in 1992 for identifying cross-industry knowledge transfers, which they dubbed “Jacobs externalities.” The concept was based on Jacobs’ The Economy of Cities and posits that knowledge transfer occur between different industries, and that local competition supports economic growth.
This came four years after future Nobel prize recipient Robert Lucas pointed to Jacobs’ work while investigating the external effects of human capital in his 1988 article On the Mechanics of Economic Development, although without formalizing his insight. Lucas’ endorsement earned Jacobs increasing recognition among economists over the following decades. Paul Krugman described her as a “patron saint of the new growth theory” and her unusual status was summed up by Robert Dimand and Robert Koehn who saw her as “her own distinctive kind of political economist … an exceptional instance of a woman without academic affiliation or university training achieving recognition among leading academic economists”. And a considerable literature grew up after Glaeser et al.’s piece. Despite this interest in her work, extended reassessments of her contribution to economic thought have yet to appear.
The city economy model, first developed in The Economy of Cities,argues that the desirable diversification of local economic activities depends largely on the destination of goods and services entering the city’s economy. The key claim is that imports are key to economic development: they embody knowledge and allow further diversifications in the local economy, as imports are gradually replaced by local supply, and make “room” for new imports – in a similar manner to import substitution. Jacobs uses this model to stress the long-term undesirability of overspecialization derived from a focus on maximizing exports, and the importance of a large and diverse local economy – ultimately delivering a critique of comparative advantages as an organizing principle of trade.
The more niches that are filled in a given natural ecology, other things being equal, the more efficiently it uses the energy it has at its disposal … That is another way of saying that economies producing diversely and amply for their own people and producers, as well as for others, are better off than specialized economies …
The most elaborate study of Jacobs’ use of biological and ecological analogies is provided in mathematician and philosopher David Ellerman’s paper How Do We Grow? Jane Jacobs on Diversification and Specialization (2005).
Depicting the city economy’s boundaries as an open system governed by evolutionary dynamics: “development is a conceptualized form of social learning.” Incoming goods, the products of foreign know-how, are vectors of developmental learning. And exports of commodities and services fund these imports. When imports feed into the somewhat enclaved export economy (i.e. overspecialized), they have a lesser effect then when they are dissipated in local consumption.
Following Geoffrey Hodgson’s taxonomy in Economics and Evolution (1993), part of Jacobs’ system could be characterized as phylogenetic and non-consummatory, that is, as exhibiting an open-ended process of evolutionary selection among a population of firms and individuals.
Jacobs targeted development schemes developed by the World Bank. She pointed to the inherent weaknesses of Robert McNamara’s development strategies for addressing “basic human needs” (literacy, nutrition, reduction in infant mortality, and health) of poor populations. She argued that because economic development is a process, it cannot be thought of as a “collection of things” which can be bought or provided. The “basic human needs approach” ignored the necessity for solvent markets to support increased agricultural yields and the populations that were being displaced. As they could no longer rely on agricultural work to sustain themselves, displaced workers failed to find jobs in nearby city economies, where labor markets had not evolved alongside the increased agricultural yields through a succession of appropriate feedback mechanisms triggering the needed corrections. And she made the same argument against technology transfers in the “Green Revolution” of the 1960s and 1970s.
The mechanism of feedback relationships is one example among others of Jacobs’ usage of systemic concepts to draw boundaries around the city economy as a system and elaborate on its behavior. Further examination of Jacobs’ use of these concepts within the paradigm she adopted may reveal a consistent link between her analysis of cities as economic units and the policies she is tended to critique. In short, future attempts at more comprehensive interpretations of Jacobs’ economic thought might benefit from stepping away from the urban focus of The Death and Life of Great American Cities while considering more carefully her later economic writings.
33.3 Regional Economics
Rebours
The history of regional science offers an interesting case study, as well as a one of the few examples, of the institutionalization of an entirely new scientific field in the years after 1945. Its foundation by Walter Isard and a group of social scientists in the 1950s represents the most institutionalized attempt to stimulate the relationship between economics and geography. The original project of Isard, who was trained as an economist at Harvard, was to promote the study of location and regional problems.
And at the outset, regional science was, in various ways, a success. It attracted many scholars from different disciplines, mostly economics, geography and urban/regional planning, and it quickly became institutionalized formally through the foundation of the Regional Science Association (RSA) in 1954 and establishment of a Regional Science Department at the University of Pennsylvania in 1958. At the same time, the creation of the Papers and Proceedings of The Regional Science Association in 1955 and of the Journal of Regional Science in 1958, offered new publication venues for scholars interested in location analysis, in particular quantitative geographers who found it difficult to publish in traditional geography journals. Within economics, regional science influenced analytical works in urban economics, as, for instance, William Alonso’s thesis, widely recognized as one of the foundational works of urban economics, was written at Penn under the supervision of Isard in 1960.
However, the prevailing processes of knowledge production and evaluation which shaped the emergence of this new field were deeply influenced by economics. Geographers became dissatisfied with Isard’s vision of the hierarchical division between geographers and economists, and the primacy given to economic theorizing and modelling as the core of the new regional science. Thus, the social organization of the field of regional science and its interactions with other disciplines mirrored the particularity of economics, a hierarchical discipline organized around a strong theoretical core and an insularity from the rest of social sciences.
In the late 1940s, Isard became increasingly concerned about the lack of interest among economists in the location of economic activities. His perception of the subject was not really different to his colleagues, but he wanted to improve the theory they used, which, following the British tradition of the late 19th century, suffered from a lack of spatial dimension. He did not seek to challenge the general equilibrium economic theory that was becoming dominant, but sought instead to integrate a spatial aspect within it.
In 1949 Isard was recruited to Harvard by Wassily Leontief to develop an input-output approach to regional development. During the war, input-output analysis received much attention because it enabled the American Air Force to identify the best targets for bombing. As a consequence, Leontief had received large research funds to develop his input-output framework.
Isard expressed a hierarchical division between economists, who provided the analytical foundations of regional science, and the geographers, who provided the empirical facts and testing.
While, the identity of economics was legitimated and reinforced by its success during the war, in geography, there was an increasing dissatisfaction with the regional geography approach that dominated the field in the1950s. The Cold War context facilitated the promotion of a new generation of quantitative geographers looking for more scientific methods.
By the mid-1970s, regional science experienced a progressive decline when geographers started to distance themselves from the analytical methods that were promoted by Isard. But even after the Regional Science Department at Penn closed its doors in 1993, regional science journals remained a going concern and continued to promote studies of spatial issues notably from urban economics and, after 1991, New Economic Geography.