Chapter -7 cities and congestion: the economics of Zipf`s Law Group three - members : GalinaJuanVlastimilMitiku

Introduction  The long run equilibrium by:  Complete agglomeration  Even spread  Depends on:  Initial distribution of MLF  A few structural parameters like: TC, ε, δ

Objectives Objectives  Analyzes the extension of the core model  Show how the inclusion of congestion changes the nature of LRE  Apply the core model with congestion to the ultimate empirical regularity of city- size distribution

Structure How congestion can be introduced in the core model& how alerts the working of the model City-size distribution to measure Zipf`s Law The core model with congestion – use of simulation to city size distribution in accordance with the empirical facts of Zipf`s low Conclusion

The relevance of urbanization & congestion Urbanization is a highly relevant phenomenon As world bank development indicators: 46% lived in urban area, out of this : 63.5% lived in small & medium sized cities( 5m ) middle &high income countries around 75% Use to explain why in the reality the main spread force in the core model of GE The major draw back of urban agglomeration to be in congestion such as EP, heavy usage of roads, communication channels& storage facilities Specific example –traffic congestion- indicates Î in urban agglomeration went along with no. vehicles & per km

Congestion as an additional spreading force Urban agglomeration driven by positive external economies give rise to external diseconomies of scale EDS also arise from EP, or drawbacks of crowdedness in general The direct consequence of congestion is straight forward since it provides incentive for Firms &MW How it affects the balance between agglomeration & spread force

The modeling of congestion The production structure of the core model can be easily adapted to introduce Congestion cost Congestion costs for each firm depends on the over all size of location of production. The size of the city r is measured by the total no. of manufacturing firms, N r in that city The case of negative location specific external economies arising from congestion are relevant, in which 0<Τ<1

.. Location decision has an impact on production function Income equation is not affected by congestion parameters How ever, congestions results from Wage rate & price index

To assess the relevance of congestion Relay on simulation on two steps : 1 St illustrate relevance of in the two cities model- allow as to apply core model in congestion with empirical phenomenon of city –size distribution 2 Nd introduce many cities & congestion racetrack economy of the core model

Two location and congestion To determine the direction of MLF & stability LE Focus on the real wage of city 1 relative city2 Plot the welfare achieved in two cities together *Re-4 No congestion cost for SE is stable when high T, where as full agglomeration in either city is stable for low T However, this is not satisfactory out come from the empirical point of views,

Five different stages –for possibility of LE by using congestion 1. very high T, spreading is the only stable (& welfare maximizing) equilibrium 2. As T decrease still stable& allowing partial agglomeration rather than complete as SE 3. Complete agglomeration in either city is SE as T continue to fall 4. As T becomes very small, their impact relative to congestion is limited. 5.For very low T, spreading is again the only stable

From this three conclusions emerge 1 st. the rage of possible LRE outcomes with congestion is wider than with out congestion 2 nd. The phenomenon of partial agglomeration establishes the possibility of small and large economic centers as a stable LE out come 3 rd. The welfare implication of the GE model have tendency to coincide with SLE

Many location &congestion Two city model in congestion allow as for viability of small economic centers of Manufacturing extend to many cities  The results of such simulation with congestion: * many cities still have manufacturing production (MP) in the LE * these cities vary in economic size from empirical point of view * the final distribution of MP is well structured around two center of economic in cities 3&15 * the individual city economic size in LE largely depends on the relative place in the initial distribution of city sizes (cities20&23)