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Urban Economics Order Between and Within Urban Areas Overview Cities are a form of spontaneous order formed by the free market for land. Central Place.

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Presentation on theme: "Urban Economics Order Between and Within Urban Areas Overview Cities are a form of spontaneous order formed by the free market for land. Central Place."— Presentation transcript:

1 Urban Economics Order Between and Within Urban Areas Overview Cities are a form of spontaneous order formed by the free market for land. Central Place Theory explains the distribution of cities Nanocivics explains how and where a city will grow Clustering explains how and where order will be assumed within a city The Rank – Size rule is a consistent statistical observation that demonstrates order in urban areas

2 Urban Economics Order Between and Within Urban Areas Hayek And Cities Consider these two champions of the free market: Adam Smith suggested an invisible hand would guide individuals into market exchanges, beneficial to both parties because an individual is motivated to serve others in order to get paid and then, serve their own needs. Fredriech Hayek refined this notion by stating that order emerges when economic actors are free to trade. Are they right? What proof do we have that they are correct? Interestingly, the order between and within urban areas provides important physical evidence on this topic. The physical imprint of cities: Follows reliable patterns when you consider groups of cities over the national and regional scale Follows a reliable pattern when you consider internal patterns within a city The consistency of these results confirms Smith and Hayeks concepts and serves as a visual reminder of economics in action.

3 Urban Economics Order Between and Within Urban Areas Spontaneous Order Many economic classical liberals, such as Hayek, have argued that market economies are creative of a spontaneous order, "a more efficient allocation of societal resources than any design could achieve." [5] They claim this spontaneous order (referred to as the extended order in Hayek's "The Fatal Conceit") is superior to any order a human mind can design due to the specifics of the information required. [6] Centralized statistical data cannot convey this information because the statistics are created by abstracting away from the particulars of the situation. [7]market economies [5] extended orderThe Fatal Conceit [6] [7] In a market economy, price is the aggregation of information acquired when people are free to use their individual knowledge. Price then allows everyone dealing in a commodity or its substitutes to make decisions based on more information than he or she could personally acquire, information not statistically conveyable to a centralized authority. Interference from a central authority which affects price will have consequences they could not foresee because they do not know all of the particulars involved. This is illustrated in the concept of the invisible hand proposed by Adam Smith in The Wealth of Nations. Thus in this view by acting on information with greater detail and accuracy than possible for any centralized authority, a more efficient economy is created to the benefit of a whole society.invisible handAdam SmithThe Wealth of Nations Lawrence ReedLawrence Reed, president of the Foundation for Economic Education, describes spontaneous order as follows:Foundation for Economic Education Spontaneous order is what happens when you leave people alonewhen entrepreneurs... see the desires of people... and then provide for them. They respond to market signals, to prices. Prices tell them what's needed and how urgently and where. And it's infinitely better and more productive than relying on a handful of elites in some distant bureaucracy. [8] [8] - Summary from Wikipedia

4 Urban Economics Order Between and Within Urban Areas Hayek on Spontaneous Order The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it. Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen. These accidents occur in the combination of knowledge and attitudes, skills and habits, acquired by individual men and also when qualified men are confronted with the particular circumstances which they are equipped to deal with. Our necessary ignorance of so much means that we have to deal largely with probabilities and chances. Of course, it is true of social as of individual life that favorable accidents usually do not just happen. We must prepare for them. Hayek 1960, The Constitution of Liberty

5 Urban Economics Order Between and Within Urban Areas Central Place Theory - Basics The organization of cities in a region is, in part, an extension of how firms arrange themselves in a region. Different businesses have different market areas: Some businesses need access to 1,000s of households to be successful (7-11, Dollar General, or a Beauty Salon) Some businesses need access to 100,000s of households to be successful (Sams Club, Costco, the Toledo Mud Hens, or a commercial law firm) Some businesses need access to 1,000,000s of households to be successful (The Chicago Bears, IKEA, an advertising firm, or an amusement park As firms with different market area needs make location decisions, the added employment opportunities adds to the increased preference to residential location decisions in the same general area. This cycle of adding jobs and then adding households contributes to the next round of businesses decisions, allowing growing areas to become dominant regional hubs.

6 Urban Economics Order Between and Within Urban Areas Central Place Theory - Example ss ss ss M s s M BIG S cities, the small cities, can only attract the businesses, like Dollar General, that are able to make profit in those locations. M cities, the medium size, can attract businesses like Dollar General or a Sams Club that are able to profit. BIG cities, the largest size, can attract all types of businesses. These cities offer more job opportunities and will generate higher population growth.

7 Urban Economics Order Between and Within Urban Areas Nanocivics and Urban Order Nanocivics: The small-scale relationships of local public life.

8 Urban Economics Order Between and Within Urban Areas Central Place Theory and the Rank Size Rule The nanotech insight: Life is not built down from the macroscopic level but up from the atomic. Molecular Engineering Eric Drexler, 1981 The nanocivics insight: Society is not built down from the national elite but up from the family and the city.

9 Urban Economics Order Between and Within Urban Areas Nanocivics and Urban Order Civilization builds up from the relationships within and between cities, families, small businesses, churches, and other local networks. Linking Generations Sharing Vision Acting Locally Engaging Minds Generating Wealth Sustaining Self- Governance

10 Urban Economics Order Between and Within Urban Areas What Nanocivics Mean for Urban Order The organization of cities comes from the standard inputs of business. Human capital is a key element of any commercial enterprise. Human capital consists of skilled labor and creative entrepreneurs, together they develop businesses that provide value to the economy. Human capital is developed through healthy families, healthy neighborhoods and other healthy neighborhood or community social, spiritual and educational organizations. These nanocivics insititutions help define how and where a city will grow.

11 Urban Economics The Location of Urban Areas Localization Economies work with Urbanization Economies Agglomeration benefits retailers just as much as it benefits industries. Clustering together helps retailers with word of mouth sales and thus reduces advertising costs. Shopping is a positive externality: An increase in substitutes in close proximity + An increase in complements in close proximity = Increase ability for comparison shopping and Increase in overall sales Supply Demand without a retail cluster Price Quantity Demand with a retail cluster

12 Urban Economics Order Between and Within Urban Areas The Rank Size Rule The Rank – Size Rule is simply a statistical observation about cities that holds true over time and over many different geographies. There is an inverse relationship between the population of a city and its rank. New York is the largest region with many people and it is ranked first. McAllen is a smaller region with fewer people and it is not in the top 100 urban areas in the United States.


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