How do economists think about cities?

Edward Glaesar of Harvard University is one of the best urban economists you can come across. For a profile of all his work so far see this.

I just finished this paper from him titled ‘The Economics Approach to Cities’ and was quite impressed. The usual urban policy emphasises place over people but economics looks at it the other way round. This means say you are building a road, the urban policy would look at how it would help city transport, but economists would look at whether the road helps give them more choices. At the end, urban policy focus would also lead to better choices for people but the focus is not on people. Whereas economists would first look at whether the welfare of the individuals is increased or not.

I haven’t read at all on urban economics but his paper is an excellent primer on the same. He discusses the various models which explain the mobility decisions of people and firms. I liked this expression which explains what helps people choose various locations:

Income + Amenities – Housing Costs – Transportation Costs

He builds his around this expression. Read the entire paper to understand the approach.

I was wondering whether we could apply the approach to Mumbai which is being pitted as an International Financial Centre. (See the various articles etc on the same here)

MIFC looks like a report which is place based. The first question is if Mumbai becomes an IFC what extra choices would people have? Would it mean better housing conditions? Would it mean people have more and better transportation choices other than local trains?

The report does have a chapter on urbanisation but is it enough? The chapter talks about new ideas needed to reform Mumbai’s infrastructure but there are just a few suggestions. The focus seems to be on how Mumbai’s strategic location and if we don’t get our act together other cities (like Dubai, Shanghai etc) would gain.

I think the report would have found more takers if the focus would have been on urbanisation reforms and how that can enable Mumbai become an IFC rather than the other way round. There are just too many problems in Mumbai and only a person living there can appreciate them.

I understand that because these reforms would take time and the MIFC would loose the race. But that is reality. One simply can’t shrug it. Efforts need to be made to make Mumbai a better city first (giving people ample choices) and IFC can follow.

One of the ideas behind MIFC is to draw talent towards Mumbai. I just have one thought. Suppose someone does come from say New York on great expectations. If the company doesn’t have suitable accommodation and he/she has to search for one and travel in local trains (or even takes a car), I am sure they will catch the next flight back home. Coming to Mumbai and staying at five star hotels and travelling to Nariman Point is a lot different than making Mumbai a home. And that is reality.

2 Responses to “How do economists think about cities?”

  1. Economist Thinking About Cities | Vector One Says:

    […] Mostly Economics Blog has an interesting post that looks at cities through the mind of economists. The Blog cites Edward […]

  2. What is driving the housing prices in Mumbai? « Mostly Economics Says:

    […] prices in Mumbai? I have often cribbed about the numerous housing problems in Mumbai (here, here and here). I have been noticing quite a few things lately about the housing market in […]

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