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Understanding Spatial Agglomeration: Increasing Returns, Land, and Transportation Costs

Author

Listed:
  • Hans R.A. Koster

    (Department of Spatial Economics, Vrije Universiteit Amsterdam, Amsterdam, Netherlands)

  • Jacques-François Thisse

    (Cent. Oper. Res. Econom. (CORE), UC Louvain, Louvain-la-Neuve, Belgium)

Abstract
Economic activities are concentrated on a small share of inhabitable land. In our view, this agglomeration is the outcome of a trade-off between increasing returns and transportation costs, which capitalizes into land rents. Our second baseline idea is that Tiebout-like sorting provides a general framework to handle a large array of problems in spatial economics. Cities have high housing prices because they are productive and offer high levels of amenities and public goods. Both production and amenity effects capitalize in the land rent at a particular location. Through the process of bidding for land, spatial sorting is the involuntary consequence of a myriad of individual decisions made by agents who pursue their own interests.

Suggested Citation

  • Hans R.A. Koster & Jacques-François Thisse, 2024. "Understanding Spatial Agglomeration: Increasing Returns, Land, and Transportation Costs," Annual Review of Economics, Annual Reviews, vol. 16(1), pages 55-78, August.
    • Handle: RePEc:anr:reveco:v:16:y:2024:p:55-78
    DOI: 10.1146/annurev-economics-020723-041113
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    More about this item

    Keywords

    new economic geography; land; transportation; increasing returns; cities; spatial sorting;
    All these keywords.

    JEL classification:

    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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