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    AR433A Location Theory W7

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    Nerinel Coronado
    Location theory analyzes where economic activities are located and why. Early theorists like von Thunen, Ricardo, and Weber developed models of agricultural and industrial location based on minimizing transport costs of inputs and outputs. Von Thunen's model predicted land use patterns around a central market. Weber determined industries locate near input sources for weight-losing goods and markets for weight-gaining goods. Later, Alonso extended location theory to urban land uses, relating rent, land value, and population to distance from the urban center. Location choices balance costs, revenues, and profits to maximize net benefits.

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    AR433A Location Theory W7

    Uploaded by

    Nerinel Coronado
    1K views36 pages
    Location theory analyzes where economic activities are located and why. Early theorists like von Thunen, Ricardo, and Weber developed models of agricultural and industrial location based on minimizing transport costs of inputs and outputs. Von Thunen's model predicted land use patterns around a central market. Weber determined industries locate near input sources for weight-losing goods and markets for weight-gaining goods. Later, Alonso extended location theory to urban land uses, relating rent, land value, and population to distance from the urban center. Location choices balance costs, revenues, and profits to maximize net benefits.

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    AR433A Location Theory W7

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    Location theory analyzes where economic activities are located and why. Early theorists like von Thunen, Ricardo, and Weber developed models of agricultural and industrial location based on minimizing transport costs of inputs and outputs. Von Thunen's model predicted land use patterns around a central market. Weber determined industries locate near input sources for weight-losing goods and markets for weight-gaining goods. Later, Alonso extended location theory to urban land uses, relating rent, land value, and population to distance from the urban center. Location choices balance costs, revenues, and profits to maximize net benefits.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    1K views36 pages

    AR433A Location Theory W7

    Uploaded by

    Nerinel Coronado
    Location theory analyzes where economic activities are located and why. Early theorists like von Thunen, Ricardo, and Weber developed models of agricultural and industrial location based on minimizing transport costs of inputs and outputs. Von Thunen's model predicted land use patterns around a central market. Weber determined industries locate near input sources for weight-losing goods and markets for weight-gaining goods. Later, Alonso extended location theory to urban land uses, relating rent, land value, and population to distance from the urban center. Location choices balance costs, revenues, and profits to maximize net benefits.

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    of 36
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    The key takeaways are that location theory examines why economic activities are located where they are and factors such as transport costs affect location decisions.

    According to location theory, the main factors that affect location are transport costs, localized materials and amenities, and agents acting in their own self-interest to maximize profits or utility.

    Some of the early contributors to location theory mentioned were von Thünen, Alfred Weber, David Ricardo, and Johann Heinrich von Thünen.

    Location Theory:

    The Foundation of Planning and other


    Economic Theories
    and Models
    A Presentation for AR 433A: Planning 3

    Location Theory
    Location theory is concerned with the geographic location of economic activities;
    it addresses the questions of what economic activities are located where and why.

    It rests primarily on the assumption that agents act in their own self interest. Thus,
    firms choose locations that maximize their profits and individuals choose locations
    that maximize their utility.

    Various factors which affect location are considered such as localized materials
    and amenities, but most weight is placed on transport costs.

    Early location theory was concerned with agricultural land use, as modeled by von
    Thnen and with industrial location theory by Alfred Weber. Modern location theory
    has been concerned with the real individual, rather than with rational economic
    man reflecting the influence of behavioral geography

    David Ricardo

    David Ricardo (19 April 1772 11 September 1823) was an English


    political economist, and was one of the most influential of the classical
    economists. His most famous work is his Principles of Political Economy
    and Taxation wherein he discussed his theories on labor value, RENT and
    comparative advantage.

    Ricardo is known for his differential rent theory based on fertility but he also
    gave "situation" as a possible cause of rent.

    If all land had the same properties, if it were unlimited in quantity, and
    uniform in quality, no charges could be made for its use, unless where it
    possessed peculiar advantages of situation.

    Economic rent: the difference between the produce obtained by the


    employment of two equal quantities of capital and labor
    : the payment over and above what is necessary to stay in business

    Johann Heinrich von Thunen

    Johann Heinrich von Thnen (24 June 1783 - 22 September


    1850) was a prominent nineteenth century German economist and
    landowner, who in the first volume of his treatise, The Isolated State
    (1826), developed the first serious treatment of spatial economics,
    connecting it with the theory of rent first developed by David
    Ricardo. That is, he took the Ricardian notion of rent one step further
    by introducing distance and space. He is sometimes referred to as
    the father of location theorists.

    Postulates that transport cost depends on the distance from the


    market and different kinds of products. The gain from farming per
    unit area (locational rent) decreases with increasing distance from
    the market.

    Coined the term Location rent (land value), which is economic rent
    minus the costs associated with transporting products to market

    Johann Heinrich von Thunen


    L = Y(P C) YDF wherein
    L: Locational rent (in DM/km2)
    Y: Yield (in t / km2)
    P: Market price of the crop (in DM / t)
    C: Production cost of the crop (in DM / t)
    D: Distance from the market (in km)
    F: Transport cost (in DM / t / km)

    Based on this equation he theorized that Producers


    (farmers) aim to maximize location rent by minimizing the
    transportation costs of getting goods to market.

    Johann Heinrich von Thunen


    Model of Agricultural Land
    von Thnen gave a predictive model of rural development around an
    idealized isolated urban center, imposing several simplifications in
    an attempt to focus on some of the fundamental processes at work
    in settlement patterns and rural economic activity.

    Simplified assumptions:
    The city is located centrally within an "Isolated State."
    The Isolated State is surrounded by wilderness
    The land is completely flat and has no rivers or mountains
    Soil quality and climate are consistent
    Farmers in the Isolated State transport their own goods to market via
    oxcart, across land, directly to the central city. There are no roads
    Farmers behave rationally to maximize profits.

    Johann Heinrich von Thunen


    Johann von Heinrich
    Thnen concluded that the
    cultivation of a crop is only
    worthwhile within certain
    distances from the city:
    beyond that, either the cost of
    the land becomes too high,
    with increasing distances
    transport costs also increase,
    or, if there is another product
    having greater yield or lower
    transport costs

    Alfred Weber

    Alfred Weber (30 July 1868 2 May 1958) was a German economist, sociologist
    and theoretician of culture whose work was influential in the development of
    modern economic geography. He is the author of Theory of the Location of
    Industries, studied industrial location decisions, and built on von Thunens theory
    by considering not only the costs of getting goods to market, but also the costs of
    transporting material inputs to the manufacturing plant.

    Considered Transportation cost as the direct function of the weight of the item
    and distance shipped.

    He asserted that all else being equal, manufacturers will locate their plants either
    at the market or the source of the input depending on whether or not the final
    product gains weight or loses weight in the manufacturing process.

    Weber formulated a theory of industrial location in which an industry is located


    where the transportation costs of raw materials and final product is at a minimum
    (least-cost location). He gave two special cases of finding the least-cost
    location as described below. His model allowed for three types of locations: (1)
    raw materials locations, (2) a production site for final goods, and (3) a
    consumption center.

    Webers Weight-Losing Case


    The weight of the final product is less than the weight of the raw
    material going into making the product.

    Fig. 1 Situation in which the processing plant is located somewhere between the source and
    the market. The increase in transport cost to the left of the processing plant is the cost of
    transporting the raw material from its source. The rise in the transportation cost to the right
    of the processing plant is the cost of transporting the final product. Note the line on the left
    of the processing plant has a steeper slope than the one on the right because the raw
    material is heavier than the finished good. Fig. 2 Situation if the processing plant is moved
    closer to the source of raw material. Note that the transport cost of the final product
    delivered to the market is lower than in the previous location. The optimal location of the
    processing plant is at source of the raw material, as shown in Fig. 3.

    Webers Weight-Losing case


    Transportation
    cost for the
    product delivered
    to the market will
    be lowest of all if
    the processing
    plant is located at
    the source of the
    raw material.

    Webers Weight-Gaining Case


    The final product is heavier than the raw materials that requires
    transport

    The weight gaining case is illustrated in Figs. 4, 5 and 6. The optimal location
    of the processing plant in this case is at the market.

    Webers Weight-Gaining case


    Transportation cost
    for the product
    delivered to the
    market will be lowest
    of all if the
    processing plant is
    located at the
    market.
    Weber established that firms producing goods less bulky than the raw
    materials used in their production would settle near the raw-material source.
    Firms producing heavier goods would settle near their market. The firm
    minimizes the weight it has to transport and, thus, its transport costs.

    William Alonso

    Extended the von Thnen model to


    urban land uses.
    His model gives land use, rent, intensity
    of land use, population and employment
    as a function of distance to the CBD of
    the city as a solution of an economic
    equilibrium for the market for space.
    He postulated that there is an inverse
    relationship between transportation
    cost and rent such that if transportation
    cost is high, then the rent is low.
    He developed the "Bid-Price Curve": A
    set of combinations of land prices and
    distances among which the individual is
    indifferent (i.e. satisfied with the
    combination of land price as well as the
    distance at some point).

    Locational determinants of commercial and


    industrial use

    COST

    - price and rent of land fall with increased distance from the CBD.

    wages are higher in the center


    - local demand for labor being greater than local supply.
    - commuting costs need to be offset by higher remuneration. (transport
    cost more of a reflection of accessibility than distance)
    - locations close to junctions, nodes and terminals are particularly
    favored maximizing proximity to suppliers and markets.
    - decentralized shopping centers are being developed following road
    improvement and increased car ownership.
    - modern manufacturing industry relies increasingly on heavy road
    vehicles for long distance transportation and incurs lower transport
    costs on the fringes of cities than at more central locations.

    Locational determinants of commercial


    and industrial use
    REVENUE

    Retailing revenue is determined by the size of the shopping catchment area


    or hinterland, not just in terms of population but in terms of purchasing
    power.
    Distribution of the day-time population and points of maximum transit
    (where people cluster together) are also important.
    In the case of offices, the spatial distribution, number and size of client
    establishments determine revenue.
    Revenue is thus greatest within the CBD and so are the aggregate costs.
    - as distance from the center increases, revenue falls and aggregate
    costs (after falling initially) rises.
    - this is due to the upward pull of transport costs, which are no longer
    offset sufficiently by economies in the use of land and labor.
    - only within a fairly short distance from the CBD are commercial
    users able to realize high profitability.

    Locational determinants of commercial


    and industrial use

    PROFITABILITY

    To maximize profits, firms need to locate where they can benefit from
    both the greatest revenue and from the lowest costs.

    - specialized functions and activities serving the urban market as a

    whole will locate centrally.


    - firms requiring large sites and those attempting to reduce costs of overconcentration will be attracted to the suburbs.
    - firms locating close together to benefit from complementary will incur lower
    costs because of external economies and enjoy higher revenue due to joint
    demand.
    > since there is a high degree of inertia, most firms find it difficult to
    adjust their locations to the optimum.
    > a satisfactory rather than ideal location moreover is established by
    zoning and land use controls.

    Locational determinants of commercial and


    Industrial use
    A mixture of interacting influences usually explain each locational
    decision.
    .....as price mechanism largely decides the profitability or utility of
    goods and services, it subsequently determines the location of
    activity and the spatial structure of the urban area supplying these
    goods and services
    .....high levels of accessibility within the CBD are reflected in low
    transport cost attracting greatest demand for commercial sites
    .....conversely, low over-all accessibility and high transport cost
    outside urban areas will attract a much lower level of demand.
    .....other possible influences: changes in population, technology and
    transportation, pressures from redeveloped central areas and local
    and central government policy.

    Locational determinants of commercial and


    industrial use
    LOCATION

    > A factor which, as propagated by the adage location, location,

    location is considered to be the foremost determinant in the


    catalyzing of the decision to purchase.
    > True in the practice of conventional suburban development
    > Downside being that a preexistence of excellence in location is
    invariably associated with high cost of land acquisition
    > Created by proximity to a desirable factor such as transportation, a
    waterfront, a slope, a long vista, a pleasant climate, a popular
    resort, or a desirable community
    > Only method to economically achieve the value added by location
    is to create it on inexpensive land through PUD.

    Walter Christaller
    Analyzes the size distribution and firm
    composition of cities
    A geographical that seeks to explain the
    number, size and location of human
    settlements in an urban system
    Settlements simply function as central
    places providing services to surrounding
    areas

    Central Place Theory-W. Christaller


    Central Place Theory extends the idea to the case
    where there is a hierarchy of cities as well as a
    distinction between urban and rural areas.
    Central Place Theory is based on the idea that
    different types of firms have different market areas
    and that cities are composed of these firms.

    A market area is the area over which a firm can


    under price its competitors
    Size depends on the relative production costs of
    firms, the cost of transportation, and the level of
    demand

    Central Place Theory-W. Christaller

    A Central Place is a settlement which provides one or more services for the
    population living around it.

    Simple basic services, i.e. food, household items (things that replenish frequently)
    are said to be low order
    Specialized services (e.g. computers, universities) are said to be of high order.

    Having a high order service implies there are low order services around it, but not
    vice versa.

    Settlements which provide low order services are said to be low order settlements.
    Settlements that provide high order services are said to be high order settlements.
    The minimum population size required to profitably maintain a service is the
    threshold population.

    Factors affecting a fall in the threshold population are:


    1. A decrease in population
    2. Change in tastes
    3. Introduction of substitutes

    Central Place Theory-W. Christaller


    The theory consists of two basic concepts:
    1) threshold--the minimum market needed to
    bring a firm or city selling goods and services
    into existence and to keep it in business
    2) range--the average maximum distance
    people will travel to purchase goods and
    services
    Normally, the threshold is found within the
    range, as the diagram shows.

    Central Place Theory-W. Christaller

    Central Place Theory-W. Christaller

    Central Place Theory-W. Christaller

    Central Place Theory-W. Christaller

    Central Place Hierarchy


    Hamlets

    Villages

    Towns

    Number of Places

    20

    Average Population

    417

    948

    2433

    Average No. of Establishments

    6.9

    54.4

    149

    Average No. of Functions

    5.9

    32.1

    59.8

    Average No. of Establishments per Functions

    1.2

    1.7

    2.5

    Central Place Theory-W. Christaller


    Conclusion

    The larger the settlements, the fewer their number


    The larger a settlement, the farther away a similar size
    settlement is
    The Range increases as the population increases
    The larger the settlement, the higher the order of its services.
    Deviations to this rule are:
    o Tourist resorts that have a small population but large number
    of functions.
    o Dormitory towns that have a large population but a small
    number of functions

    August Losch
    Improved Webers theory by introducing the
    demand factor.
    He assumed that manufacturers are driven to
    maximize profit by locating at the place that
    maximizes the difference between revenues
    and costs.
    He went on to assert, however, that it is
    impossible for a firm to evaluate all possible
    points in order to find the place of greatest
    money profit.

    Walter Isard
    Further developed the isotropic sphere by
    introducing the concept of substitution into a
    general synthesis of the works of Von Thunen,
    Weber, and Isard.
    That is, selection of a manufacturing site from
    among alternative locations can be viewed as
    substituting expenditures among the various
    production factors such that the best site is
    chosen.

    Allen Pred
    Introduced a behavioral matrix in which
    the quantity and quality of information
    available to a decision maker is graphed
    on the y-axis and their ability to use
    information is graphed on the x-axis.
    In this matrix the perfect location
    decision would be found at the
    intersection of perfect knowledge and
    ability to use that knowledge.

    Michael Weber
    The Impact of Uncertainty on Location,
    1972. Primarily concerned with adding more
    complexity into the isotropic sphere by
    introducing the uncertainty principle, which
    effectively dismisses the assumptions of
    perfect knowledge of alternatives and
    complete information.
    The greater the level of uncertainty, the
    greater the risk.

    David Smith

    Brought into question the role of profit


    maximization as the sole motivator of
    location decisions. When choosing
    location, firms consider other factors that
    are either quantifiable or unquantifiable.

    End of presentation.
    Thank you.

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