The Structure of Urban Equilibria : a Unified Treatment of the Muth - Mills Model

A principal challenge facing the urban economist is the formulation of a rigorous economic explanation for a variety of observed regularities in the spatial structures of real-world cities. The most obvious among these is the dramatic spatial variation in the intensity of urban land-use. Buildings are tall near the centers of most cities, while suburban structures embody much lower ratios of capital to land. Providing a precise explanation of this pattern is an important goal of urban economic analysis. Among other obvious regularities requiring explanation is building height variation among (as opposed to within) cities. Buildings near the centers of large urban areas appear to be much taller than those near the centers of small cities, and a successful economic model must be able to isolate the causes of this observed difference. Urban economics has met the challenge of scientific explanation, with considerable success. The last twenty years have seen the emergence and refinement of a simple yet powerful model of urban spatial structure that successfully explains the principal regularities observed in the urban landscape, including those mentioned above. This model, which derives from the work of Alonso (1964), Mills (1967, 1972b), and Muth (1969), is built around the key observation that commuting cost differences within an urban area must be balanced by differences in the price of living space. This compensating price variation, which reconciles suburban residents to long and costly commuting trips, has far-reaching implications for the spatial structure of the city. While Alonso explored these implications in a framework where individuals consume land directly, Muth and Mills analysed a more realistic model where land is an intermediate input in the production of housing, which is the final consumption good. The purpose of the present chapter is to provide a unified treatment of the