Agglomeration, Transportation and the Quality of Life

Abstract

The main objective of this thesis is to investigate the economic consequences of the agglomeration of economic activity. The concentration of economic activities is important because of its many costs and benets that shape the location choices of economic actors and thereby the shape of modern cities. The concentration of economic activity is associated with gains in productivity. This creates high rewarding labour markets, access to which are particularly important for workers. The changes in labour market outcomes, associated with workers choices to relocate, from one local labour market to another, reveal the potential magnitude of the productivity gains of agglomeration. This thesis aims to quantify the size and scope of these static productivity gains of agglomeration, that accrue to workers immediately upon relocation. High density areas usually offer workers high quality carrier opportunities and access to institutions of higher education. While the static part of the gains of agglomeration can be gained by workers immediately upon relocation, part of the gains are only achieved over time. The value of the experience workers acquire is therefore likely to vary depending on the density of the area where the experience is acquired. The other objective of this thesis is to quantify the magnitude and explore the heterogeneity of these dynamic agglomeration effects. To gain easy access to high rewarding and dense labour markets workers often prefer to live close to these industrious areas. The high demand for housing in the areas of dense economic activity results in high housing prices, which deters further concentration. The workers who choose to live outside the urban centers can usually enjoy lower housing prices but must either suffer a longerdaily commute to the urban centers or accept lower wage in the periphery. An important part of this dual location choice of where to live and where to work are the local amenities often pictured as access to beaches, clean air or high quality public services. To quantify the value of these amenities this thesis constructs the Quality of Life (QOL) index that measure the representative household's willingness-to-pay for the local amenities and use the index to investigate the importance of the commuting costs and transportation for households quality of life. Urban centers do not only function as centers of employment but also as providers of large markets with a high variety of goods and services. Access to such markets are important for consumers and often requires a trip by car to the city. Access to the market involves the cost of parking which consist of both observed monetary price as well as the often unobserved costs of searching for a parking spot. This thesis provides estimates of the parking demand elasticity for Copenhagen while taking into account the presence of unobserved search costs.