Urban Congestion and the Development of Employment

This thesis extends the previous literature on urban subcenter formation by introducing congestion cost of transportation. A new model is constructed to analyze the efficiency of private decision about firm decentralization with the presence of unpriced transportation congestion. The model features a linear city with provision of transportation infrastructure oriented toward carrying workers to the CBD. Congestion cost of transportation is modeled by a function of traffic density, that is, the ratio of traffic volume to transportation capacity. The introduction of congestion costs creates mutual dependence between private decision about residential location and the transportation cost even in a simple monocentric model. The simultaneity problem becomes much more complicated in the decentralized scenario. The standard urban land market theory is applied to the model to analyze equilibrium condition of the decentralized city, and the optimal level of decentralization is analyzed by using the aggregate household utility of the whole city as a criteria. Two scenarios of firm decentralization that are investigated include when technology of transportation infrastructure is non-uniform and when land market failure due to unpriced congestion externality is not considered. Complex computer algorithm is required for simulation of the model. Under various scenarios, the simulations show that only the technology of transportation infrastructure affects the efficiency of private decision about decentralization. If transportation infrastructure serving the whole city is uniform in technology, private decision about decentralization will be socially efficient. However, if the transportation infrastructure serving the central area is technologically less congestable than that serving the subcenter, the private decision will lead to too many firms decentralizing to the subcenter. These results suggest that subsidy for firms located in the central area may be required in order to ensure the socially desirable level of firm decentralization. Thesis Supervisor: William C. Wheaton Title: Professor of Economics and Urban Planning Thesis Reader: Joseph M. Sussman Title: JR East Professor Professor of Civil and Environmental Engineering