9 Skilled Cities and Efficient Urban Transport

This chapter surveys the fundamental forces that drive the formation and size of cities. We discuss the different types of agglomeration economies generated by a dense web of activities, with special emphasis on the benefits associated with the clustering of highly skilled workers. The distribution of activities within cities results from the trade-off between commuting and housing costs. We show that in this trade-off commuting costs are the cause and land rent is the consequence. The land rent capitalizes the advantages associated with proximity to particular urban locations such as employment centres. We identify the main sources of inefficiency in various urban policies implemented in Europe. Special attention is paid to the regulation of the land market and the pricing of urban transport.