Cities As Economic Engines: Is Lower Density In Our Future?

When studying urban economics, a common starting point is to make the obvious observation that economic activity does not have an even geographic distribution. Instead, itclusters in metropolitan areas. To put it another way, even with higher real estate costs, higher wages and prices, traffic congestion, pollution, and crime, businesses find it economically worthwhile to locate in urban areas. For such firms, there must be some offsetting productivity benefit. The Summer 2020 issue of the Journal of Economic Perspectives includes a four paper symposium on "Productivity Advantages of Cities." 

Here, I'll focus on a few themes of the first two papers. But it's impossible to read the papers in late-summer 2020 without wondering if the productivity advantages of cities that they describe are going to be a casualty of public concerns over the pandemic and rising crime in urban areas. 

Duranton and Puga provide an overview of the research on economic gains from population density. They write: 

While urban economists broadly agree on the magnitude of the productivity benefits of density, the evidence distinguishing between possible sources is less solid. Duranton and Puga (2004) classify the mechanisms into three broad classes. First, a larger market allows for a more efficient sharing of local infrastructure, a variety of intermediate input suppliers, or a pool of workers. Second, a larger market also allows for better matching between employers and employees, or buyers and suppliers. Finally, a larger market can also facilitate learning, by facilitating the transmission and accumulation of skills or by promoting the development and adoption of new technologies and business practices.
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