Accuracy and efficiency in simulating equilibrium land-use patterns for self-organizing cities

Xiaofang Dong and Stephen Ross

Journal of Economic Geography, 2015, vol. 15, issue 4, 707-722

Abstract: Lucas and Rossi-Hansberg (L&RH) (2002, Econometrica, 70: 1445–1476) and Fujita and Ogawa (F&O) (1982, Regional Science and Urban Economics, 12: 161–196, 1989, Environment and Planning A, 21: 363–374) develop urban models in which economic activity self-organizes due to spillovers in production. However, F&O (1982, Regional Science and Urban Economics, 12: 161–196, 1989, Environment and Planning A, 21: 363–374) show that rents and employment density are flat or falling as the city center is approached, while in the simulations of L&RH (2002, Econometrica, 70: 1445–1476), rents rise at an increasing rate toward the center suggesting a concentration of employment near the center. For the Lucas and Rossi-Hansberg model, we prove that land rents and density must be flat or falling near the center. We explain how using a polar coordinate system when approximating a two-dimensional integral can create systematic imprecision in their simulations, and then present revised simulations. The proofs and simulations suggest that in urban models where economic activity self-organizes firms do not unduly cluster at the center of a central business district even in monocentric equilibria.

Date: 2015
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