It is hard to imagine any model of the urban economy with any
level of spatial detail that can ignore personal transportation.
Conversely, ignoring the urban economy in transportation studies
leads to wrong predictions. The generation of travel is strongly
linked to land use, to housing and job location decisions and to
the pricing, finance, modal mix and supply of transportation. This
interdependence and feedback between transportation and the
urban economy has been center stage in urban economic theory
ever since theoretical models of urban land use have been
formulated in the1960s.
The purpose of this article is to present in a nutshell and in a
form that is stripped from unnecessary details, the most funda-
mental results on the interrelationships between urban econom-
ics and transportation that have emerged out of five decades of
theory. The extant theoretical literature contains only some of
these results. The unified extended treatment exposited here has
not appeared anywhere and the simplicity, generality and power
of the basic results has become largely obscured by the demand-
ing analytical requirements of the ‘‘workhorse of urban econom-
ics’’: the monocentric model.
The monocentric model assumes that all jobs are pinned at the
central business district (CBD) and treats the urban space around the CBD as a continuous dimension.
1
The analytical difficulty
from treating space as continuous has limited the scope of many
contributions and the eagerness of scholars to engage in extend-
ing broadly this basic workhorse model. In particular, extensions
of partial equilibrium models to general equilibrium ones have
lagged and several issues have been considered relatively intract-
able. This has been especially true for analytical models with
decentralized employment and job sub-centers that conform to
realistic patterns and go beyond straightforward extensions of the
monocentric framework
2
; and for models with more than one
mode of urban travel (e.g. roads and public transportation).
3
To make it possible to obtain fundamental results with little if
any loss of generality, this article embraces an approach that holds
the promise of making urban economics at once more digestible,
more communicable and more analytically pleasant, and quite
easily extendable compared to the continuous workhorse model. The approach treats space as discrete. Once this is accepted, then a
natural starting point is that of a core–periphery setup of just two
discrete urban land areas. The core is an area within a metropolis
that represents the CBD and the inner or central city; the
periphery is a surrounding area that represents the suburbs.
4
This
undeniably fits urban reality all around the world, quite well. In
this article, we generalize the core–periphery setup and show how
to exploit its potential. Given the limited space available to this
article, we focus on the most basic issues.