Big and small cities

I will tell the story as I go along of small cities no less than of great. Most of those which were great once are small today; and those which in my own lifetime have grown to greatness, were small enough in the

old days.

HERODONTUS

There is no need to worry about mere size. Sir Isaac Newton was very much smaller than a hippopotamus, but we do not on that account

value him less.

BERTRAND RUSSEL

Why aren’t all cities the same size ?

0 100 200 300

Rank of urbanized are

POPU

L

A

T

I

O

N

Size Distribution of …. Urbanized AreasThe Rank – Size Rule : bNitsche(2005) Rank = C / N29 studies C = constant; N = Population ; b = exponent b is to estimated from the data on rank & population.b = 0.80 – 1.20For the studies of the rank size rule that use economic cities rather than political cities ( b = 1.02 )

Size Distribution of Urban Areas,2000Popolation Range Number of Urban Areas

Greater than 10 million 2

5 million to 10 million 4

1 million to 5 million 43

100,000 to 1 million 324

Less than 100,000 549

Popolation of Largest Cities as Share of National Population

Metropolitan Area Population Share of National Population (%)

Tokyo 19,037,361 15.76

Mexico City 16,465,487 20.97

So Paulo 15,538,682 11.46

Buenos Aires 10,759,291 35.47

Santiago, Chile 4,227,04 34.87

Montevideo, Uruguay 1,157,450 39.36

Utility and City SizeWorkforce ( million)

Wage( $ )

Labor Income ($)

Commuting Cost ( $ )

Utility( $ )

1 8 64 5 59

2 10 80 10 70

4 11 88 22 66

70

66 59

U ($)

1 2 4 Worker/city (million)

S

MH

Localization Economies & Industry ClustersSharing Input SuppliersSharing a Labor Pool : Varying Demand for LaborBenefits and Cost of Labor PoolingSharing a Labor Poll : MatchingSharing Information : Knowledge Spillovers

Sharing Input SupplierThe input demand of an individual firm is not

large enough to exploit the scale economies in the production of the intermediate input.

Transportation cost are relatively high. If demanders and supplier interact in the design or fabrication of the intermediate input, face-to-face contact between buyer and seller is necessary, and proximity to the input supplier is important. Similarly, if the intermediate input is bulky, fragile, or must be delivered quickly, proximity is important.

Sharing a Labor Poll :Varying Demand for LaborHow many workers will we hire ?What sort of labor skills will we need

in our workers ?

Expected Income in Cluster & at Isolated Site Wage Switch Cost Prob.of Switch Expc.Net Income

Isolate size $20 8 ½ $16=(1/2.20)+1/2.(20-8)

Industry cl 16 0 ½ $16=(1/2.16)+1/2.(16-0)

Benefits and Cost of Labor Pooling Isolated Firm Firm in Cluster

Number of worker number of worker 120 80 120 160

$

30

10

$

30

20

10 D g

D b

Db Dg

An isolated firm pays different wages in good times & bad times. A Firm in cluster pays the same wage in both cases, but hires more workers in goog time.

DIFFERENCE IN CITY SIZELocatization Economies : - Large city = 120 workers - Medium size cities = 60 - small cities = 30 Urbanization EconomiesThe Role of Consumer Goods

AGGLOMERATIVE ECONOMIES IN MARKETING : SHOPPING EXTERNALITIESImperfect SubstitutesComplementary GoodsRetail Clusters

50 100 110

number of cars per week

$

9

8

I.S S in Cl

D*

D1

INNOVATION IN TELECOMMUNICATIONS & THE FUTURE OF CITIESIn given relationshipEasier communication

TERIMAKASIH