Edited by Charlie Karlsson
Chapter 3: The Analysis of Location, Colocation and Urbanization Economies
Börje Johansson1 and Ulla Forslund 2 1 Introduction Location analysis has two major perspectives. The ﬁrst is concerned with where to place a given economic activity or facility, deﬁned as an optimization problem, where the properties of the economic environment are taken as a given fact. The second perspective motivates a diﬀerent question: how can the entire landscape of activity locations be understood and explained? Both approaches can be associated with an equilibrium framework. However, the second perspective also stimulates the student to think about the evolution of location patterns. How do they emerge and which are the adjustment processes? 1.1 Perspectives on location analysis In the past, economic model-building favoured formulations, where the distance between buyer (receiving agent) and seller (delivering agent) could be ignored. In Debreu’s (1959) contribution location indexing is possible, but only in an inessential way. This is manifested in the spatial impossibility theorem attributed to Starret (1978), which implies that the Arrow–Debreu model cannot be applied to a homogenous space, except in the case where transport costs are zero for any spatial competitive equilibrium. As emphasized by Fujita and Thisse (2002), this implies that regional specialization, urban regions and trade cannot be competitive equilibrium solutions. The above problem has been avoided for a long span of time by introducing diﬀerent forms of pre-located elements into location models. This is typical of the contribution of Weber (1909), in a model where input suppliers and customers all have a given location and...
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