JOURNAL OF ECONOMIC THEORY 9, 223-237 (1974)

A Comparative Static Analysis of Urban Spatial Structure

WILLIAM C. WHEATON

Department of Economics, Massachzzsetts Institute of Technology, Cambridge,

Massachusetts 02139

Received October 30, 1973

More than a decade has passed since Alonso published his general
theory of the urban land market [l]. In the intervening years, a number of
other authors have also developed equilibrium models of urban land rent
and density [2]. While the structure of these models has been much
discussed, there has been virtually no comparative static analysis done on
them. The only exception is Mills’ recent numerical analysis of a city with
specified functional forms and parameter values [3]. While Mills’ work is
excellent in scope, his reliance on Cobb-Douglas functions would seem to
limit the generality of his results. The pm-pose of this paper is to conduct a
truly general comparative static analysis on two equilibrium models of
urban land rent and density. Unlike other authors, we use a utility func-
tion whose only requirement is that both goods be “normal” and have
positive income effects. This assumption is sufficient to determine the sign
of all effects.
In both of our spatial systems, the city is viewed as only a small part of a
national economy. The production of goods and services occurs at the
city center, but wages, prices, and the costs of commuter travel are all
exogeneous. Consumers who work in this center earn the same income
and have identical preferences. As with Alonso and others, locational
choice essentially represents a tradeoff between land and travel.
The first of our cities is “closed” in the sense that population size is
exogeneous, while consumer levels of welfare must be determined within
the system. This situation is typical of industrially advanced societies,
where there is essentially no alternative to living in urban areas. In under-
developed countries, however, rural life often establishes a base-line level
of welfare. Migration to cities occurs until urban advantages are reduced.
To mirror this process our second city is “open”-the level of utility is
take& to be exogeneous and the population size to be endogeneous.
In the “closed” model, then, the four parameters are consumer income,
223
Copyright 0 1974 by Academic Press, Inc.
AU rights of reproduction in any form reserved.
224 WILLIAM C. WHEATON

the opportunity price for urban land, population size, and travel costs. The
output is a rent and density profile, city boundary, and level of welfare for
all consumers. In the “open” system, the exogeneous population param-
eter is replaced by the level of consumer welfare, and the output of the
model is population size.
Section 2 reviews the theory of Alonso and develops some preliminary
theorems used later in the paper. Sections 3-5 examine the influence of
parameter changes in the “closed” city, while Sections 6-8 prove results
for the “open” city. Concluding remarks, which compare the results, and
suggestions for expanding the analysis follow in Section 9.

Alonso’s theory approaches the land market from the supplier’s point of
view. Each rentier is a local monopolist over a unique commodity location.
As such, he auctions his land only to those consumers offering the highest
return per unit of land. This process of rent maximization is not unrestric-
ted, however, and must be constrained by several equilibrium conditions.
The first of these is that, if all consumers possess the same tastes and
income, they must all enjoy the same level of utility, regardless of where
they locate. Following several authors, utility depends on land 4 and “all
other expenditure” X. This constraint is expressed by

u = u(x, q). (0

In addition, the land price (R) that landlords extract must be in accord
with each consumer’s budget constraint. Given income y and the travel
costs of living at distance t, k(t), this is expressed by

R = (y - k(t) - x)/q. (2)

With consumers indifferent (U fixed), the process of land auctioneering

ensures that, unless consumers collude, each must gradually offer the
maximum land price to be assured of a location. A consumer’s “bid
price” is thus defined as the maximum amount rentiers can charge for
land, given a level of indifference by consumers. This is determined by
maximizing expression (2), with respect to q and X, subject to the con-
straint (1). This process yields two first-order conditions: the constraint (1)
and the marginal requirement
au au = R ~ Y - k(t) - x
___ .i
aq I ax 4
 COMPARATIVE STATIC ANALYSIS OF CITY 225

Given the structure of k(t), the two equations (1) and (3) are solved for
x and q as functions of y, t, and U. The consumer’s bid price is the (maxi-
mum) value of R, obtained by inserting the solution value for x and q into
(2). These three solution functions are represented by

4 = q(t, *, Yh
x = x(6 % Y), (4?
R = R(t, u, y).

In both “open” and “closed” cities, urban land competes with rural
land. The boundary of the city (m) is thus the point where urban bids equal
rural prices (here assumed uniform at S):

R(m, u, y) = S. (3

Lastly, the land area from city center out to this boundary must be just
sufficient to accomodate the land demands of urban households. For a
circular city, this is expressed by
‘?I*
2rr I’ t/q(t, u, y> dt = IV. (61
0
In the “open” system, these two conditions can be sequentially solved
for the unknowns m and N. In the “closed” city, the problem is more
difficult and requires the simultaneous soIution of (5) and (6) for m and 81.
In both cases, once these values are known, they can be inserted into
expression (4) to obtain the equilibrium rent and density profiles. In order
to conduct a comparative static analysis of (5) and (6), we need several
properties of the 4, x, and R functions (4). These follow below.

THEOREM 1. If utility is strictly quasiconcave, and if both goods have

positive “income effects,” then

3Rmu <o aRmu > o au au

where Rmu = 7 __.
-a7 9 -XT- ' 04i ax
This result follows simply by examining Fig. 1. A positive income effect
ensures that consumption moves from point A to A’ (lying within the
upper right gradrant of point A). Concavity ensures that at point
(increased 9, x fixed) the ratio of marginal utilities is smaller than at A’ and
hence A. At C (q fixed, greater X) Rmu must be larger.
With this result, we can fully determine the impact of a series of param-
eters on the functions (4). Consider first the changes in 4 and x that
226 WILLIAM C. WHEATON

I
4I
I n’
I
&
---A-
A
f
--_----
B
_-

FIGURE 1.

result from separately altering U, y, t, and k. In the latter case, we assume

travel costs are proportional to distance [k(t) = kt]. Totally differentiating
the system composed of (1) and (3), we have

a2.4 au
a4 ax
--aRmu Rmu
___ q- + ;)
( a4 + 4 > i

du
=
- $ dk - ; dt + $ dy
1

Solving each case and applying Theorem 1, we have

THEOREM 2.

4 Rmu(aRmu/ax + l/q)
-du = [(aRmu/ax) Rmu - aRmu/aq] ’ ”
dx
l/g--Rmug20,
xi-=

47 aRmu
Rmu 7] < 0,
-&=
dx
-= -Rmu*>O
& & ’
4 -dk aRmu
dt= dt I qT-[ Rmu aRmu
ax 1> 0
’
 COMPARATIVE STATIC ANALYSIS OF CITY 227

dx
-Rmu*<Q
-is-= dt ’

4 aRmu
-= -tq-------- Rmu ___
aRmu > 07
dk i [ a4 ax I
dX
-= -Rmu*<Q
dk dk

Turning to expression (2), the definition of the maximized consumer’s

bid rent, we have:

THEOREM 3.

-=-
aR I>0
aY 4 ’
aR -dk
-= -y&l < 0,
at
aR
-=-- t
<o [k(t) = kt]
ak 4
these follow by applying the envelope theorem [4] to (2) and (3).], and

8R I dx 47
-+Rmudu
z=-; O[ du

zzz -l/& < 0 (by Theorem 2)~

0

Lastly, the following theorem is most useful in serveral later proofs:

THEOWEM 4.

4WW = 4 dx
dt %, yg- t Km -&

= $- [u,, - u,, Rmu] (by Theorem 2)

>o
(since concavity and positive income effects imply that the bracketed term
is positive).
In the sections that follow, it is always assumed that utility is concave
and that both goods have positive income effects. This allows us to apply
228 WILLIAM C. WHEATON

Theorems 1-4 as we “shock” the equilibrium system (5) and (6). In most
cases the information is sufficient (although not necessary) to determine
the qualitative influences of the different parameters. We begin in a
“closed” city by considering the influence of population size (N) and rural
land rents (S).

Allowing N and S to change, the equilibrium conditions (5) and (6) yield
the following system of equations in the “‘closed” city:

By separately solving

>o (8)
(since by Theorems 2 and 3, aq/& > 0, aR/at -=c0, and aR/au < 0,

<o (Theorems 2 and 3),

-=du miqm g [lni t/q2 2 dt + $$ m/E q%]

dS 0

<o (Theorems 2 and 3),

<o (Theorems 2 and 3).

A greater population expands the city and lowers the level of welfare,
while higher rural land prices diminish welfare by contracting the city. The
impact of these pressures on the rent and density gradients can be obtained
 COMPARATIVE STATIC ANALYSIS OF CITY 22

as follows. At each point t in the city, income and travel costs are constant
as N and S change u; consequently,

d&
-=-- 8Rt du
dN au dN > ”

4,
_z__- aq, du
dN 2u dN < ”

&t
--= aqt du
dS aus’”

Thus in both cases, the effects of greater rural competition or population

raise rents and densities at all locations.
The analysis has been simple so far, because the parameters N and S do
not enter the bid rent or density functions. Examining how income and
transportation expenditures change a “closed” city is more complicated.

To assessthe impact of travel costs, we must remember that the 4 and R

functions (4) depend not only on U, y, and t, but also on any parameters
of k(t). As was stated previously, for the results below, the marginal cost
of travel is assumed constant (equal to k) and thus becomes a parameter
in (4). Differentiating conditions (5) and (6) with respect to k, we have

(10)

Rearranging the first expression and inserting into the second, we have

fig = - (%/S) - (+/g)g

du
[ - jm tlq2 2 dt - (m $$)/(qwt
z o
230 WILLIAM C. WHEATON

According to the results of Theorems 2 and 3 (aq/& > 0, aR/au < 0,

aR/at < 0), both terms on the left-hand side are positive, so that the
bracketed term is negative. Theorems 2 and 3 (aq/ak > 0, aR/ak < 0,
aR/at < 0) also imply that the righthand side is positive, which proves that
du/dk must be negative. Remembering that distance is zero in the center,
Theorems 2 and 3 tell us that both aR,/ak and aq,/ak equal zero, so that

aR, du
---dR, _ i?Ro + aR, du
dk ak -z-z= au-z-’

dq, % ho du aqodu
dk=-&-+--=--.
au dk au dk

Since dujdk is negative, it follows from Theorem 3 that central rents and
density increase with rising marginal costs.
Determining the influence that k has on city size requires rearranging
and inserting (10) so as to eliminate du/dk:

Again using Theorems 2 and 3, the left-hand side integral, and thus the
entire bracketed term, are found to be positive. The sign of dmldk therefore
depends on the sign of the right-hand:

aR,aR,= au (from Theorem 3),

ak I au max,

a4 -a4 c q+ l)/(t -&-) (from Theorem 2).

au= ak (

Combining, we find

_-a4 g*/-f?$-] = 3 [1 - (F+ l)(mg)/(t-CJJ].

[ ak
 COMPARATIVE STATIC ANALYSIS OF CITY 231

By Theorem 2, aqjak > 0, and Theorem 4 implies that the ratio

m(&r/ZxJt (&/ax) is greater than one over all t in the integand (since
&/ax increases in t). Lastly, Theorem 1 states that aRmu/ax is always
positive. The right-hand term in the last line above is thus negative at any
location t. The right-hand integral in the second expression of (11) is then
negative, so that dmjdk is less than zero. Summarizing, we have shown
that

-g <o, dR, g < 0, g < 0. WI

dk >”

Increasing the marginal cost of travel reduces consumer welfare,

shrinks the city boundary, and raises rents and density at the center. This
pattern implies that there exists an intermediate location from the center
to which rents and density increase. From this point to the border, rents
and density fall. Rising marginal travel costs steepen both gradients with
respect to distance.

The impact of rising consumer income on a “closed” city is best deter-

mined through a slightly different approach. Rather than work directly
with the constraint (6), we take account of the equality between l/q and
--(iiR/L?r)/(dk/dt) (Theorem 3) and rewrite this condition as

Integrating by parts 1 and using the equilibrium boundary condition (S),

this becomes

Defining the term in brackets as Z(t), we differentiate totally with

respect to j::
232 WILLIAM C. WHEATON

The bracketed term above equals Z(m) and S must equal R(m, u, y),
so the first and last terms cancel. Rearranging, dza/dy becomes
du
-ZZ ( jm ?fi Z(t)/% dt) (- jam 2 Z(t)/% dt)-’
d! o a~
(13)
- (jm -$ Z(t)/% dt) (j;” T/s Z(t)/% dt)-‘.
0

One additional assumption is sufficient, although not necessary, to deter-

mine the sign of du/dy. We require that marginal travel costs do not
increase over distance with an elasticity greater than unity:
d (dkldt) t $& = t d2k dk < 1
dt I dt -2F-zI *
This assumption does not seem at all restrictive to us. Marginal oper-
ating expenses usually decline with distance as start-up costs and con-
gestion are overcome. Marginal psychic costs are the product of two
considerations: the marginal disutility of time lost and the time involved in
travel (the reciprocal of velocity). The latter decreases with distance, while
the former probably increases. Many authors simply assume the net effect
of these opposite tendencies is marginal costs that are roughly constant.
Our assumption allows falling, constant, and all but the most rapidly
rising marginal costs.
The effect of this restriction is to ensure that Z(t) is positive. When this
is combined with Theorem 3 (aR/i?y > 0, i?R/au < 0), (13) implies that
du/dy is also positive. To determine the influence of income on the other
variables, we differentiate the equilibrium border condition (5):

I_aR dm + --?E-+A=
aR du 8R o)
am dy au dy ay
or

(by Theorem 3).

Likewise, by differentiating rent and land consumption at the city center,

dR, a& du aR,
=aUdy +- ay
&
(15)

= -$$ [1 - $/$I (by Theorem 3),

 COMPARATIVE STATIC ANALYSIS OF CITY 233

d% aqodu+---aqo
--=----
dy au dy ay

The sign of all these effects depends on the magnitude of ~d~/d~)/(~~~/~~),

evaluated at either m or the city center. Remembering that Theorem 3
implies JR/au = -(8R/ay)/(&/&), (13) says

According to Theorem 4, (au/i&,)/(&/ax) < I when &/8x is evaluated

between 0 and m. Likewise, (au/&J/(&/ax) > 1 over the same range.
Since Z was assumed positive over all t between 0 and m, it follows that the
denominator is smaller than the numerator in the first expression an
greater than the numerator in the second. In short, (du/dy)/~&q’ik,) > 1,
while (du/dy)/(au/8x,) < 1. Returning to (14) and (16) with these results,
we find

dm aR, i?R
since - __
-->o
n’Y ( ay i -am > 0)’
dR
-$ < 0 (since

d4”>o . aqo
d. ( Smce __aY < 0 and F

By placing very mild requirements on travel costs, we have found that

rising per capita income expands the city, increasing the urban border and
lowering central rents and density. This pattern creates rent and density
gradients which are flatter with respect to distance. There thus exists some
intermediate location up to which rents and density fall, and beyond which
rents and density rise. The added costs of travel that result from this
expansion are more than counterbalanced by addition land consumption,
and consumer welfare is improved.
234 WILLIAM C. WHEATON

The impact of parameter changes on the structure of an “open” city

should be quite different than those just obtained for the “closed” metro-
polis. The primary reason will be that the level of utility is fixed and is not
itself readjusting in response to changes in the other parameters. This
simplicity makes the analysis a great deal easier.
Consider the impact of rising rural rents (S). With income and the
level of utility fixed, (5) is differentiated to yield
aR dm 1 ar -=dm
anzdS= dS

By Theorem 3, aRlam is negative, so the border of an open city must

contract. Since the arguments of the rent and density functions (u, y, k)
are all exogenous, the overall rent and density gradients remain unchanged.
The only variable that changes in (6) is therefore m, and, as it decreases,
the integral and, hence, population diminish. In a “closed” city, the nearer
border bids up rents and density, as a fixed population must be accommo-
dated in less space. Consumer welfare naturally suffers. In the “open”
city, because utility levels are fixed, rents remain constant and out-
migration reduces the aggregate demand for land.

To examine how changes in the exogenous level of utility alter an “open”

city, we proceed in a similar manner to above. By differentiating (5),

-__
aR dnz aR, = o or & _ --aR m aR
am du + au du au i 3C’ (1%

Again by Theorem 3, it follows that the urban boundary contracts as

rural welfare levels climb. Not surprisingly, this results again from out-
migration. By differentiating (6),
dN dm
-2~ Jamt/q2 2 dt -t mlq, x.
-i&F=

Since dm/du is negative and aq/h is positive (Theorem 2), the urban
population is reduced. At all distances t, between the city center and
border, y and k are fixed as u changes; hence
dR aR & a4
--==<o, -&=g-pl
du
 COMPARATIVE STATIC ANALYSIS OF CITY 23

Out-migration proceeds faster than the city shrinks, so that rents and
density are reduced. This of course, is necessary to sustain the new, higher
level of rural (and urban) welfare.

The impact of changes in income and travel cost can be studied together,
for the analysis involves identical operations. By d2Terentiatin.g the border
condition (5) with respect to each,

and w9
aR dm
---+-!I?= iiR o or dm
---=- -a.~, aR
am dk ak dk ak i xi- < OS

The signing of both effects again directly follows from Theorem 3. It is

interesting that both of these impacts are the same in the “open” city as
in the “closed.” There is a great difference, however, in the response of
rents and density. In the “open” city, at each distance t, the only param-
eter of the rent and density functions that changes is the one being
altered; thus (by using Theorem 3)

and
dR i?R
x<o, --47 a4 > Q
73F= dk 8k ’

In the “closed” city, greater income flattened the density and rent
gradients while also lowering them at the center. In the “open” city, almost
the opposite occurs as rents rise at all points. Likewise, in the case of
greater transportation cost. This resulted in steeper rents and density in
the “closed” city, with the level of each being higher in the center. The
“open” city responds with lower rents and densities at all points. The
impacts of these movements on migration in the “opaP city are rather
obvious. If rising income lowers individual land consumption and expands
the border, population must increase through in-migration. Greater travel
costs has the reverse effect on land consumption and city size, so popula-

642/g/z-ro
236 WILLIAM C. WHEATON

tion decreases by out-migration. This can be shown formally by differen-

tiating (6) and applying Theorem 2:

-=dN -257 jam t/q2 (3) dt + m/q, $- > 0,

dv
(21)
dN
---z -2~ I’ t/q2 @) dt + m]qm $ < 0.
dk

While the implications of simple models must be regarded with healthy

skepticism, the results above would seem to generalize in several directions.
We could first envisage a more elaborate model where congestion costs
are separated from operating expenses and are determined endogenously
[5]. The influence of a parameter change in this model can be expressed
as a weighted sum of two separate influences in the simple models discussed
here. Take the case of rising per capita income in the “closed” city. The
simple model predicts city expansion and a flatter density gradient. The
total area under this gradient must remain constant, however, so the area
to the far side of any location must increase. This implies that more
people pass through each point in commuting to work. The congestion
component of travel costs would therefore increase, and.the simple model
predicts a countertendency towards higher density and a smaller city. The
net outcome, in this case, must still lead to city expansion and a flatter
density profile. If the net effect was a steeper density and smaller city, then,
by reversing the argument above, fewer people would pass each point,
congestion would be reduced, and the impetus for a smaller city would no
longer exist. Thus it seems likely that generalizing the model in this
direction would not alter the qualitative results obtained above.
Another generalization that readily comes to mind is the addition of
many household “types” or strata, each with different incomes and
preferences. While such disaggregation would greatly complicate the
model, the basic issue of trading land for travel expenditure remains at
the heart of each stratum’s locational decision. It might be true that
certain parameter changes could alter the relative location of different
strata, but again it seems likely that the changes in overall rents and the
city boundary would be in the indicated directions.
Lastly, one can always raise the issue of whether comparative statics
is useful at all in analyzing urban structure. Land use patterns involve
huge capital outlays, which can change only slowly under the best of
circumstances. In a short-run dynamic model, city expansion would
 COMPARATIVE STATIC ANALYSIS OF CITY 237

change the nature of land use only at the urban fringe. Yet as margi
changes occur in the use of border land, it seems inevitable that density
throughout the city must also adjust, even if reluctantly, in the general
direction predicted by the models here.

REFERENCES

1. W. ALONSO, Location and land use, Harvard University Press, Cambridge, Mass..
1964.
2. M. J. BECKMAN, On the distribution of urban rent and density, 9. Econ. Theory
1 (1969); A. MONTESANO, A restatement of Beckman’s model on .... J. &on. Tlzeovy
4 (1972), 2; E. S. MILLS, An aggregative model of resource allocation in metropolitan
areas, Amer. Econ. Rev. (May, 1967); R. MUTH, The spatial structure of the housing
market, Pap. Proc. Reg. Sci. Asso. 7 (1961); L. WINGO, “Transportation and Urban
Land,” RFF, Washington, DC 1961.
3. E. S. MILLS, ‘“Studies in the Structure of the Urban Econony,” Princeton University
Press, Princeton, NJ, 1972.
4. I?. A. SAMUELSON,“Foundations of Economic Analysis,” pp. 34-35, Harvard Univer-
sity Press, Cambridge, MA, 1947.
5. ROBERT SOLOW, Congestion, density and the use of land in transportation, Swell.
J. Econ. 74 (1972).