Abstract
This is a wonderful book that no review can do justice to. Through the 19th to the mid-20th centuries, the idea that urban structure, form and growth could be explained as a consequence of geometry and economy took hold. From Ricardo and von Thunen to Weber, Christaller, Losch and Isard, a theory of why cities locate where they do and how they are internally structured was laid out. This culminated in the canonical urban model pioneered by Alonso, Muth, Mills, Beckman and others which for the last 50 years has provided a basis for thinking about rent, density, transportation costs, and all the related policy issues concerning housing markets, subsidies, regeneration and segregation that now dominate our concern for cities. Since then, urban economists have sought to embellish these ideas using much more powerful methods of empirical analysis, and slowly but surely the edifice established in the mid-20th century has been elaborated, extended and tested.
What Ioannides does in this book is to provide a comprehensive summary of much of the econometric work that has now become the standard in urban economics, linking this easily and coherently to location theory, to ideas about systems of cities, to trade and to housing markets. At the same time, he argues that the predominant model to synthesize all this is based on theories of social interaction that economists have developed over these recent years. His book is the first to do so and, to an extent, it shows just how far urban economics has progressed since the years of the canonical model. For someone coming to this field afresh, this is now the place to begin. It is unlikely that there will be anything else like this for some time, for this book represents a massive leap forward in that there are few, if any, who have attempted such a synthesis.
It is very tempting to think that what Ioannides has produced is a new canonical urban model that will set the tone for research and applications of these ideas for the next generation and beyond. In one sense he has, in terms of his approach, but what I think he has also shown is that the city is far too complicated a place for any unified theory, even one built on a state-of-the-art approach involving empirical econometrics, even though the models that he outlines are quite generic. In essence, the model developed in the first half of the book is built on the widely held notion, often associated with Manski (2000), that social interactions as well as contextual effects are key to how activities, firms and individuals make locational decisions in cities. This model articulates such interactions as endogenous effects such as those pertaining to neighbourhood, related social groups and so on, and then mixes these with contextual events which are exogenous and correlated effects which are related to like-variables. After a relatively gentle introduction in Chapter 1, the model is developed in full detail in Chapter 2, and this is essential to the rest of the book. This chapter is very tough going and some econometric background is needed to pursue it. There are many variants of the model that are developed and there is a clear guide to empirical applications. In particular, the idea that social interactions, when embedded as endogenous variables in linear models, generate multiplier effects, and the notion of direct and indirect effects are broached head on. The idea that these models can be mirrored in social networks is also explored, and although these links tend to be conceptually rather than empirically grounded it is quite clear that future research will begin to link these econometric specifications to network science. This is something that is picked up directly in the last chapter and it indicates that, although Ioannides has produced a path-breaking book, this is still a work in progress.
In Chapters 3 and 4, these models are applied first to individual location decisions which focus mainly on the housing market, and then to the location of firms with the idea of sorting in decision-making to the fore. Schelling’s residential segregation model features in Chapter 3 and there is some extensive discussion of house prices and how they are determined, while in Chapter 4 the location of firms is modelled using multinomial logit models from which agglomeration externalities are derived and measured. In both these chapters, there is a weakening of the standard Manski model which really sets the tone for applications, rather than providing a uniformly applicable model for explaining every kind of urban feature.
All this sets the stage for an outline of the canonical model in Chapter 5, where ideas about how individuals sort themselves in cities are introduced and then extended to notions about labour markets. These ideas are extended into what are called human capital spillovers in Chapter 6, where wages and productivity issues are introduced. A slow but sure scaling-up in geographical terms from cities to regions takes place in these chapters, but this is done implicitly rather than explicitly. One rather interesting feature of this book, which is true of all chapters, is that although the focus is avowedly empirical it is also strongly theoretical, and empirical applications always defer to theory. The organization of these ideas is based on introducing theoretical ideas and methods first and then illustrating them with applications, as in Chapter 6. In Chapter 7, specialization in cities is examined for the case of autarkic (self-contained) cities, and then intercity trade, labour market specialization and general notions of equilibrium are introduced.
Then follows a chapter that almost seems out of place on city size distributions, but of course no book on urban economics would be complete without some reference to Zipf’s law. In fact, what Ioannides does in this chapter is to enrich standard interpretations of Zipf and the work of Gibrat with models of urban evolution; in this way, he moves well beyond the equilibrium focus of most work in this field. In Chapter 9, he looks at long-term urban growth and begins to tie various components of the canonical models to growth theory, to labour markets, and to the evolution of city sizes. In Chapter 10, he simply concludes by arguing that we need a much stronger network representation of urban economic models and, like many writing currently about formal approaches to studying cities (including myself; Batty, 2013), he argues that the magic of their fascination is related to their networks.
I had hoped this book would provide a much more seamless integration of urban economics, city size and location theory, but I know that this is not possible and may never be so. Cities are simply too complex. I would have liked to see a little more focus on how we aggregate from neighbourhoods to nations in geographical terms, for the treatment in this respect is a little too implicit for my taste. I would also have liked to see some more discussion of the way the temporal dimension affects static representations. What is superb, though, about this book is how Ioannides demonstrates the power of econometrics, always relating it to theory, to method, to space and time, and of course to empirical testing of the most rigorous kind. There is little that we know about urban economics and location theory that does not enter this exposition and, in this sense, his quest at integration is through specification and estimation of consistent models. There is so much here for the reader, but before one grapples with this book it would be a good idea to refresh one’s knowledge of mathematical economics, specifically in the micro domain, and perhaps a little statistics. This would be most worthwhile, for Ioannides has produced a seminal monograph that will guide how we work in this field for a long time to come.