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Journal of Economic Geography Advance Access published online on January 31, 2007
Journal of Economic Geography, doi:10.1093/jeg/lbl027
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© The Author (2007). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Urban interactions and spatial structure

Robert W. Helsley* and William C. Strange**

*Watkinson Professor of Environmental and Land Management, Sauder School of Business, 2053 Main Mall, University of British Columbia, Vancouver, BC, V6T 1Z2, Canada.

**Corresponding author: RioCan Real Estate Investment Trust Professor of Real Estate and Urban Economics, Rotman School of Management, 105 St George St., University of Toronto, Toronto, ON M5S 3E6, Canada.

This article specifies and solves a model of endogenous spatial interactions where agents choose to visit a particular location to interact with others. Equilibrium fails to achieve first-best levels of visits and population density. A construction subsidy can restore second-best efficiency, but not first-best because it does not operate on the visit margin directly. A transportation subsidy can achieve first best. This result—which contrasts with earlier work—comes from treating interaction as a choice variable, rather than focusing on population density, a correlate. Developers are unable to implement even second-best efficiency because of their limited control over a city's land area.

Keywords: spatial interactions, urban spatial structure,
JEL classifications: R13, R14
Date submitted: 13 October 2005     Date accepted: 5 December 2006


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