Web Book of Regional Science Regional Research Institute 2020 An Introduction to Regional Economics Edgar M. Hoover University of Pittsburgh Frank Giarratani University of Pittsburgh Follow this and additional works at: https://researchrepository.wvu.edu/rri-web-book Recommended Citation Hoover, Edgar M., & Giarratani, F. (1999). An Introduction to Regional Economics. Reprint. Edited by Scott Loveridge and Randall Jackson. WVU Research Repository, 2020. This Book is brought to you for free and open access by the Regional Research Institute at The Research Repository @ WVU. It has been accepted for inclusion in Web Book of Regional Science by an authorized administrator of The Research Repository @ WVU. For more information, please contact [email protected]. The Web Book of Regional Science Sponsored by An Introduction to Regional Economics Fourth Edition* By Edgar M. Hoover (deceased) Distinguished Service Professor of Economics, Emeritus University of the Pittsburgh Frank Giarratani Professor of Economics and Director, Center for Industry Studies Department of Economics Pittsburgh, PA 15260 Tel: (412) 648-1741 Published: 1999 Updated: January, 2020 *The web version of the third edition of An Introduction to Regional Economics which first appeared in The Web Book of Regional Science series was edited by: Scott Loveridge Professor, Extension Specialist Michigan State University This fourth edition of An Introduction to Regional Economics is the result of extensive revision of the web book version of the third edition by: Randall Jackson Director, Regional Research Institute West Virginia University This work was originally published by Alfred A. Knopf, Inc., copyright 1971, 1975, and 1984. In 1999, copyright was transferred from Knopf to the Hoover Family Trust and Frank Giarratani. West Virginia University’s Regional Research Institute is distributing this electronic version of the text by permission. Direct copyright permission requests to Professor Giarratani at the University of Pittsburgh. On 11/24/09, Dr. Larry G. Bray, Research professor of Economics at the University of Tennessee (UT) writes, “You have been kind enough to allow us to use as class material your web book An Introduction to Regional Science by Hoover and Giarratani. This web book forms the basis for much of the course and complements added material assigned to the class. You have done an excellent job in creating this document, which we feel which is the best available regional economics textbook. Thanks again for your commitment to the support of higher education in our colleges and universities. You are going a great job.” 2 <This page blank> The Web Book of Regional Science is offered as a service to the regional research community in an effort to make a wide range of reference and instructional materials freely available online. Roughly three dozen books and monographs have been published as Web Books of Regional Science. These texts covering diverse subjects such as regional networks, land use, migration, and regional specialization, include descriptions of many of the basic concepts, analytical tools, and policy issues important to regional science. The Web Book was launched in 1999 by Scott Loveridge, who was then the director of the Regional Research Institute at West Virginia University. The director of the Institute, currently Randall Jackson, serves as the Series editor. When citing this book, please include the following: Hoover, Edgar M., & Giarratani, F. (1999). An Introduction to Regional Economics. Reprint. Edited by Scott Loveridge and Randall Jackson. WVU Research Repository, 2020. <This page blank> Contents PREFACE 11 1. INTRODUCTION 12 1.1 What Is Regional Economics? .................................. 12 1.2 Three Foundation Stones ..................................... 12 1.3 Regional Economic Problems and the Plan of this Book ................. 13 Selected Readings ............................................ 15 2. INDIVIDUAL LOCATION DECISIONS 16 2.1 Levles of Analysis and Location Units ............................. 16 2.2 Objectives and Procedures for Location Choice ....................... 17 2.3 Location Factors .......................................... 19 2.3.1 Local Inputs and Outputs ................................ 19 2.3.2 Transferable Inputs and Outputs ............................ 20 2.3.3 Classification of Location Factors ............................ 20 2.3.4 The Relative Importance of Location Factors .................... 20 2.4 Spatial Patterns of Differential Advantage in Specific Location Factors .......................................... 22 2.5 Transfer Orientation ........................................ 24 2.6 Location and the Theory of Production ............................ 30 2.7 Scale Economies and Multiple Markets or Sources ..................... 34 2.8 Some Operational Shortcuts ................................... 35 2.9 Summary ............................................... 37 Technical Terms Introduced in this Chapter ........................... 38 Selected Readings ............................................ 38 3. TRANSFER COSTS 40 3.1 Introduction ............................................. 40 3.2 Some Economic Characteristics of Transfer Operations .................. 40 3.3 Characteristic Features of Transfer Costs and Rates .................... 41 3.3.1 Route Systems and Service Points ........................... 41 3.3.2 Long-Haul Economies ................................... 42 3.3.3 Transfer Costs and Rates ................................. 44 3.3.4 Time Costs in Transfer .................................. 48 3.4 Locational Significance of Characteristics of Transfer Rates ............... 49 3.4.1 Effects of Limited Route Systems and Service Points ............... 49 3.4.2 General Locational Effect of Transfer Rates Rising Less than Proportionally with Distance ........................................ 51 3.4.3 Modal Interchange Locations .............................. 53 3.5 Some Recent Developments Concerning the Structure of Transfer Costs ....... 55 3.5.1 Introduction ......................................... 55 3.5.2 Higher Energy Prices and the Pattern of Industrial Location .......... 55 3.5.3 Technological Change in Data Processing and Transmission ........... 57 3.6 Summary ............................................... 58 Technical Terms Introduced in this Chapter ........................... 59 Selected Readings ............................................ 59 Appendix 3-1 Rate Discrimination by a Transfer Monopolist ................ 59 4. LOCATION PATTERNS DOMINATED BY DISPERSIVE FORCES 61 4.1 Introduction ............................................. 61 4.1.1 Unit Locations and the Pattern of an Activity ................... 61 4.1.2 Competition and Interdependence ........................... 61 4.1.3 Some Basic Factors Contributing to Dispersed Patterns ............. 62 6 4.2 Market Areas ............................................ 63 4.2.1 Introduction ......................................... 63 4.2.2 The Market Area of a Spatial Monopolist ...................... 63 4.2.3 Market-Area Patterns ................................... 67 4.3 Some Aspects of Spatial Pricing Policy and Market Areas ................ 70 4.3.1 Market-Area Overlap ................................... 70 4.3.2 Spatial Price Discrimination ............................... 72 4.3.3 Pricing Policy and Spatial Competition ........................ 75 4.4 Competition and Location Decisions .............................. 76 4.5 Market Areas and the Choice of Locations .......................... 79 4.5.1 The Location Pattern of a Transfer-Oriented Activity .............. 79 4.5.2 Transfer Orientation and the Patterns of Nonbusiness Activities ........ 79 4.6 Summary ............................................... 80 Technical Terms Introduced in this Chapter ........................... 80 Selected Readings ............................................ 80 Appendix 4-1 Conditions Determining the Existence and Size of Market Areas .... 81 5. LOCATION PATTERNS DOMINATED BY COHESION 84 5.1 Introduction ............................................. 84 5.2 External Economies: Output Variety and Market Attraction .............. 84 5.3 External Economies: Characteristics of the Production Process ............ 85 5.3.1 Introduction ......................................... 85 5.3.2 External Economies and Scale .............................. 86 5.3.3 Lichtenberg’s Study of “External-Economy Industries" .............. 87 5.4 Single-Activity Clusters and Urbanization .......................... 92 5.4.1 Introduction ......................................... 92 5.4.2 Urbanization Economies ................................. 93 5.4.3 Measuring Urbanization Economies .......................... 94 5.5 Mixed Situations .......................................... 96 5.5.1 Attraction plus Repulsion ................................ 96 5.5.2 Coexistence of Market Areas and Supply Areas, When Both Sellers and Buyers Are Dispersed .................................. 97 5.6 Summary ............................................... 98 Technical Terms Introduced in this Chapter ........................... 98 Selected Readings ............................................ 99 6. LAND USE 100 6.1 What is “Land"? .......................................... 100 6.2 Competiion for the Use of Land ................................ 100 6.3 An Activity’s Demand for Land: Rent Gradients and Rent Surfaces ......... 102 6.3.1 Rent Gradients and Surfaces with Output