Urban Transportation and Land Use

This chapter is an introduction to the economics of the connection between urban transportation and land use. The nature of the transportation system strongly influences the patterns of land use in an urban area. Indeed, the long-run histories of urban areas sometimes are identified with the dominant mode of transportation of the time; the age of rail, the age of the automobile, and so on. Suppose that we wish to investigate the effect of an improvement in the urban transportation system on the urban land-use pattern. How does one go about studying this question? The purpose of this essay is to discuss the methods that are employed in this area of applied research. This essay largely concentrates on this influence – the direction of causation from transportation system to land-use pattern. However, it is also true that the pattern of land use influences both the performance of an existing transportation system in the short run and the investments in transportation that are made in the long run. This direction of causation – from land-use patterns to transportation system performance and investment analysis – has been emphasized in the related field of urban transportation planning, but is discussed only briefly here. The analysis of the effect of transportation on land use involves the fundamental concept in urban economics that was introduced by Alonso (1964) – bid rent. The economic reason for the existence of cities is to bring people and economic activities into proximate locations. Higher accessibility (lower transportation costs) of an urban site to desirable destinations increases the rent that is offered for that site. The urban economy is made up of different “sectors” such as households (of various types), businesses in the various industries, and governmental entities. Bid rent is defined as the maximum amount that a household or firm is willing to offer for a unit of land, given a level of utility (for a household) or profits (for a