Transcript Regional Economics

Regional Economics
George Horváth
Department of Environmental Economics
[email protected]
The locational issue of agricultural production
• The earliest spatial economic models
addressed the problem of the location of
agricultural production
• One of the most important works was done
by Johann Heinrich von Thünen
• His 1842 book „The Isolated State” dealt with
the question of agriculture and national
economy
• His model was one of the first ones to try to
explain the particularities of agriculture
originating in location.
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Let’s suppose that this is our state:
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Assumptions for simplicity
1. Let’s assume an isolated state, (a territory) that
• doesn’t engage in export and import
• gets all its food from local products
• all agricultural products are sold on a local market
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Assumptions for simplicity
The City
(the single market)
2. Let’s assume there is only a single market
(state) such that
• all goods are exchanged in the city in its centre
• prices on this market will be the same regardless of
where the product comes from originally
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Assumptions for simplicity
3. Let’s assume that there are no built up roads,
• transportation of goods occurs as the crow flies
• transportation takes place by oxen-drawn carts
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Assumptions for simplicity
4. Let’s assume that the quality of land is
homogenous throughout the territory
• N.B.: this is not a part of the original model, only of
the visual interpretation!
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Implications of the assumptions
• Producers get a homogenous income for their produce
sold on the market
• Their income will therefore depend on the average yield
per hectare
• Their net revenue will be smaller, as we have to account
for the costs of working the land and transportation to
the markets.
• If the quality of land is homogenous all over the
territory, the costs of working the land will be the same
everywhere
• Transportation costs will be different each time
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Formulation of net income
The net income per hectare of the producer will be
J  Q  P  K   Q  t  k
where
• J is the income per hectare of a given product
• Q is the average yield of the product
• P is the price per given quantity of product
• K is the cost of working the land per quantity of product
• t is the transport cost per tonne-kilometre of product
• k is the distance of the product from the market
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The same again, graphically
Q· (P – K)
Income (J)
•
The net profit will decrease as the
distance from the market increases.
•
We can see that there exists a point Z
beyond which all income would be
consumed by all expenses, so
production stops beyond this point.
Z
Distance from market (k)
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Further specificities of production
• We have to realise that production will not be
restricted to a single product
• The quantity produced will depend on the demand on
the market, as each will have its own Q· (P – K)
• Transport costs will also differ, as products will have a
different typical mass and different physical properties:
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–
–
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bulk goods vs. liquid goods
light goods with large volume vs. denser goods
fragile goods vs. robust goods
perishable goods vs. durable goods
• If transport costs increase, the maximum acceptable
distance from a market decreases
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Zones of Production
•
•
At any given point around the town, they will produce a
product whose profitability at that point is highest.
The limits of these zones are found at the point where
the profitability of two products is equal.
Q1  P1  K1   Q1  t1  k  Q2  P2  K 2   Q2  t 2  k
Q1  P1  K1   Q2  P2  K 2   k
Q1  t1  Q2  t 2
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Zones of Production, graphically
Income (J)
I
II
III
The City
X
Y
Z
Distance from market (k)
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What if? – Shortage in Zones of Production
• If there is shortage of a product in the market, its
demand will exceed it’s supply
• The price of the product will increase
• This will pull with it the profitability of the product
• To compensate for the excess in demand, more land will
be brought into the production of this product
• This can only be done at the expense of other products
• Supply of other products will change too
• This will affect their prices too
• Equillibrium will be reached with a different product
structure
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What if? – Cheaper transportation appears
• If transportation technology develops, and a newer
means of transport appears, this will have an effect on
the zones too
• As per-unit transport costs drop, profitability remains
the same!
• However, the decreased transport costs will expand the
zones of production.
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Zones of Production, graphically
Income (J)
I
I
II
II
III
The City
X
X Y
III
YZ
Z
Distance (k)
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Zones of Production – Geographically
• We have now graphically established the limits of the
zones
• If we take the graph of the limits of the zones, and
rotate it around the Y-axis, we will get a spatial
representation of the zones
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Zones of Production – Geographically
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So what do we produce and where?
•
•
Von Thünen defined that certain goods will be produced
at a particular distance from the market
He deduced this zonal distribution:
1.
2.
3.
4.
5.
Dairy and intensive agriculture
Firewood and construction wood plantations
Wheat production
Free-range livestock production
Forest (uncultivated)
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The „Iceberg-model”
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In von Thünen’s interpretation, the oxen drawing the
carts to and from the market will consume part of the
wheat load on the journey there and back (fuel)
This can be considered as the associated „transport
cost”, expressed as a fraction of the cargo
Samuelson describes this as the Iceberg-model in 1954
The decrease in the cargo of wheat during the trip is
similar to how an iceberg shrinks as it travels away from
the poles
A smaller quantity of product will arrive as was sent out
This way, the model becomes more homogenous, and
the effects on other markets can be ignored
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The interpretation of markets in the city
Inner city functions:
• Living
• Services
• Commerce
Land price
Outer city functions:
• Industry
• Transport & logistics
• Storage
Agricultural functions
City Centre
X
Y
Z
Distance from city centre
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Factors of the value of land
•
•
Von Thünen’s model establishes the value of land by
considering its proximity to the markets
In reality, the value of land is composed of several
factors
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–
–
–
–
–
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Natural resources
Soil quality
Waters
Climate and environment
Accessibility
Availability and quality of work force
These are put in the framework of „bid price” by
William Alonso
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Von Thünen’s model in commerce
Factors for locating commerce within the city:
• The quality and profitability of the goods sold
• The sensitivity of turnover to distance from
city centre
• The demand of land of the commercial activity
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Von Thünen’s model in commerce
Revenues & Profits
Luxury goods
Consumer goods
Groceries and day-to-day goods
City Centre
X
Y
Z
Distance from city centre
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Alonso’s model of living spaces
• City dwellers have the same income but
different priorities
• They can choose between
– Smaller or larger properties
– Properties nearer to or further away from the
centre
– More or less free time (depending on commuting)
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Alonso’s model of living spaces
The equation for this is px  rh  y 0  w 1 t  T 
The utility function is U  x , h, T  , where
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•
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•
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h is the city land used
r is the price of city land per square metre
x is the quantity of other consumption
p is the price level of other consumption
T is the value of free time per hour
t is the value of travel time per hour
w is the wage level
y0 is the non-wage income
If prices r, p, and t are given, households will maximise their
welfare accordingly.
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Alonso’s model of Location and Land Use
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Supposition: the aggregate income and utility function of
households is the same
All workplaces and all shopping outlets are in the city
centre
With the aggregate income given, one must choose
between buying/renting a larger plot further away from
the city, or a smaller one closer to the
Therefore there exists a substitutive relationship
between the benefits arising from a larger and more
distant plot and the time and costs needed to travel to
the city centre
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Relationship between land price and distance
Price of Land (p)
City limits
City Centre
Distance from city centre
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Population density and rehabilitation
Population density
Distance from city centre and stages of
urban rehabilitation
City Centre
Distance from city centre
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Third World megacities
Population density
City Centre
Slums
Distance from city centre
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Choosing locations for services
•
•
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When locating production, the key aspects were weight
and distance
But services have no weight!
Key aspects to consider:
– Consumer travel time and expenses
– Range of available services
– Attractiveness of service provider
•
The model to use is the Gravitational and Potential
Model
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Gravitational and Potential Model
Formula of Universal Gravitation
m1  m2
F G
r2
Formula of gravitational models
F1,2  G 
P1  P2
d1b,2
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Gravitational and Potential Model
F1,2  G 
P1  P2
d1b,2
log F1,2  logP1  P2   log G  b  log d1,2
log F1,2  logP1  P2   log G  b  log d1,2
F1,2
 log G  b  log d1,2
log
logP1  P2 
F1,2
 log G
log
logP1  P2 
b
log d1,2
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Regression curve of the model
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Gravitational and Potential Model
Gravitational potential
Pi
Vij  G  b
d ij
Strength of gravitational field
n
Pj
j 1
d ijb
Ei  
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