Competitive Equilibrium of Transportation and Housing in the Residential Ring of an Urban Area

A general approach to competitive equilibrium within an urban area is suggested in this paper. The demand for transportation is incorporated into the equilibrium conditions of the household, and in turn the equilibrium conditions of the household are incorporated into the existing models of market equilibrium. The resulting relations are used to verify the characteristics of the prices of housing, rents, velocity, transportation costs, and densities. The implications of the model are consistent with the exponential form of the velocity function observed empirically by Angel and Hyman (1970). These implications illuminate the question of efficient resource allocation in improving the transportation system in the proximity of the CBD. Earlier explanations of the exponential density function given by Muth (1969) are verified and shown to be insufficient.