Welfare Implications of Location and Spatial Structure; Public Facilities

1. The Nature of "Economic Man" (homo oeconomicus): rational & omniscient Ambiguity of "profit maximization": profits vs. rate of return etc.

2."Beyond Profit Maximization": Alternative Optimizing Criteria:

3. "Efficiency" versus "Effectiveness"; "Equality" vs. "Equity"

Individual versus group utility & welfare functions: Pareto optimum & beyond (such as "Kaldor-Hicks compensation test", see: Goodall)

Social interpretation of transport cost minimization:

individual versus aggregate (social) efficiency

"social distance elasticity of demand"

land use and transportation interdependencies

5. Private versus social objectives in classical location models

  1. Weber's efficiency solution
  2. Christaller's thresholds for public services How much inequality for the sake of efficiency?
  3. Hotelling's agglomeration solution: why not quartile locations? See: Hirschman,"Spatial Duopoly & Dynamics of Two-Party System" (Package)

6. Applications: Doctors' offices (see Hemenway, in package)

7. Conflict resolutions (see, also, Lake, Resolving Locational Conflicts)
a) hierarchical government (from top down): by fiat or incentives
b) critical isodapanes, joint action spaces, solution procedures with or without side payments (see Isard, General Theory, Ch.9)
c) Tiebout's model of fiscal decentralization "votiny with your feet" (assumes individual mobility; unrealistic?)

8. Why Government? (variety of "market failures")

MERIT GOODS = interference goods: Society (at whatever governmental level) has decided that a particular 'good' is good for people (de-merit good = bad)

PARETO OPTIMALITY: no further improvement in any individual's (and therefore the group's) utility is possible without making somebody else worse off.

PUBLIC (or SOCIAL) GOODS = goods or services that can be used or consumed by many people simultaneously and for which exclusion of users is not feasible. (PUBLIC relates to the form of use and has nothing to do with the nature of the producer, whether government or a (subsidized) private firm).

PURE PUBLIC GOOD = a good which is enjoyed by all in common; each individual's consumption of such a good leads to no subtraction from any other individual's consumption of that good; maryinal cost of provision to an additional user = O.

'TIEBOUT MODEL': individuals 'adopt' locations which most closely reflects their preferences with respect to quantity & quality of public services provided and taxes imposed. The greater the variety of locations with different public goods packages, the more efficient would the public goods provision be.

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