ECONOMICS ELSEVIER Regional Science and Urban Economics 26 (1996) 613-643 The new urban landscape: Developers and edge cities Vernon Henderson*, Arindam Mitra Department of Economics, Brown University, Providence, RI 02912, USA Received 1 December 1994; final version received 10 October 1995 Abstract In this paper we model the decisions of an edge city developer who chooses business district capacity and location strategically to maximize profits. The de- veloper competes against a core city with historically given downtown capacity for employment and, implicitly, residential population. Moving nearer the core city enhances production efficiency by increasing the efficiency of the exchange of information between businesses in the core and edge city. On the other hand, it increases typical residential rents and commuting costs (and hence wages demanded by employees) and weakens the developer's local monopsony power. The develop- er's choice of location and capacity play out in a complex but fascinating fashion, depending on the historical capacity of the downtown. Keywords: Edge city; Developers; Location theory; Information externalities; Chaos JEL classification: L12; RI0; R14; R30; R52 1. Introduction In 1991 Joel Garreau published Edge City, an important book that helped to popularize the notion of edge cities and helped to prompt changes in the way we think about American cities. Edge cities are new cities created since 1965, outside of major central, or core cities. They are centered around enormous tracts of mixed use office space. They are complete cities, offering * Corresponding author. Tel.: 401-863-2886/1417; fax: 401-863-1970. 0166-0462/96/$15.00 (~) 1996 Elsevier Science B.V. All rights reserved PII S0166-0462(96)02136-9 614 V. Henderson, A. Mitra / Reg. Sci. Urban Econ. 26 (1996) 613-643 jobs, residences, shopping, and services for their inhabitants. Their export products are not traditional manufacturing. Rather, 'in Edge City, the offices are the factories of the Information Age... the finished product shipped back out, essentially, is cleverness'. Garreau identifies 123 existing and 77 emerging edge cities in the 35 largest U.S. metro areas and asserts that more people inhabit these cities, than traditional cities. An edge city is a planned controlled entity with 'not only patterns and rules but limits to its growth' (p. 81). Controlled development of office space also often involves control of the surrounding residential areas with shadow governments which levy taxes, provide local services, and control land use. Edge cities present a very different perspective on suburbanization and the role of land developers in the urban landscape than in the traditional urban literature. Similarly, they provide a new perspective on the spatial organization of production in metropolitan regions and how business district sizes are chosen. Finally, they present a fresh perspective on how segrega- tion by income or socio-economic class occurs. Traditional suburbs were based on the decentralization of economic activity from the central city as transport and production technologies progressed after 1920 with the introduction of the automobile and truck, intra-metro highways, and assembly line and continuous process production (e.g. Mills, 1972, and Muth, 1969). Economic activity spilled out of core cities, into nearby smaller towns, as a simple decentralization phenomenon, where the central city still retained the focal economic role. Economists also modelled bedroom suburbs, as involving the flight of higher income residents from central cities into more homogeneous suburban 'clubs' for the consumption of relatively high levels of local public services (Ellickson, 1971; Mills and Oates, 1975). Edge cities differ from these traditional suburbs. They are not simply bedroom communities or a product of urban decentralization and sprawl. They are the creation of strategically controlled office development, by large-scale land developers. For edge cities, developers make strategic choices of office space capacity, location vis-~-vis the central city or other edge cities, industry/job mix in allocating office space and perhaps popula- tion. Edge cities are imperfect competitors in metropolitan labor markets, given there are a limited number of major communities in any metro area. Edge cities are typically based around one of the great American ports such as Boston, Chicago, Houston, New York, and San Francisco. These traditional ports are passive entities with largely historically given capacities and little control over total population. While major portions of these cities may have been the construct of large land developers decades ago, all land has been sold off to atomistic holders over time, and time has eroded the constraints of the original planning and zoning process. Edge cities' location and capacity choices are current (not historical) and strategic because they v. Henderson, A. Mitra / Reg. Sci. Urban Econ. 26 (1996) 613-643 615 engage the passive core city and potential competitors in a struggle for the metro area resources. In this paper we start by modeling the edge city phenonemon. We examine the strategic choices by one edge city for capacity, employment, and location vis-h-vis the core city. We explore questions like why edge city capacities may be large relative to historical downtowns with their advan- tages such as existing, paid-up infrastructure and better access to federal funding, and why edge city strategic locational choices give the appearance of randomness suggested in Garreau. This work tells us the key elements of the impact of edge city developers on metropolitan form. For comparison, we analyze how edge city configurations in metro areas might differ if they occurred only through the atomistic movements of workers, without the tight control exhibited by edge city developers. The final section of the paper suggests a broader research agenda on edge cities. Before turning to edge cities per se, we comment that, obviously, we are choosing to model the modern urban landscape as being determined by a sequence of strategic choices adopted by 'large agents' or land developers who engineer en masse reagglomerations of people. This is the general approach in one branch of the existing literature (e.g. Hamilton, 1975; Mills and Oates; 1975; Henderson, 1974, 1985; Pines, 1991; Rauch, 1993; Helsley and Strange, 1990; Mitra, 1994). This is in contrast to a different branch of the literature which views spatial configurations as determined by decisions made by atomistic agents, each with naive expectations (e.g. Beckmann, 1976; Fujita and Ogawa, 1980, 1982; and especially Krugman, 1993, 1996). We believe that the national land market is replete with 'large' private agents, particularly at the development stage. They initiate massive planned private developments on the scale of medium-size cities, manipulating the decisions of the atomistic agents, driving us to equilibria typically not even considered in a purely atomistic world. Developments may be purely private with the developer building all public infrastructure as well as private structures (e.g. office space). Structures may be sold off over time, so they return to atomistic holders and the public infrastructure may be gradually turned over to the collective/public domain. But the private developer may retain majority ownership for decades, and her initial plans will contractual- ly or institutionally define city development for decades. The role of (state or county level) public government is to be a repository and perhaps the enforcer of the developer's plans. Developments can also involve public and private participation, with various arrangements involving the financing and provision of public infrastructure and services. Sometimes the developer is even a government entity which buys up, develops, and sells off space for profit. Regardless, there is effectively one large agent in each of these scenarios who develops agglomerations on a massive scale. To back up these assertions and Garreau's assessment, we also gathered 616 V. Henderson, A, Mitra / Reg. Sci. Urban Econ. 26 (1996) 613-643 information on edge cities. We were unable to uncover any central source of information on individual land developers in edge cities. Our information is based on telephone interviews and a review of documents. Our interviews suggested that all edge cities were originally the product of decisions by a single large agent; certainly we have uncovered no counter-examples of edge cities created purely through the decisions of atomistic agents. In Table 1 we present information on 10 edge cities-the name of the development, the planned office space, the 1993 office space and employment, and the name of the developer. Only three of these are among Garreau's 10 largest edge cities. 1 For the others, we were unable to untangle the development story. Most of the problem lies in disentangling space developed under the aegis of the original developer, compared with space developed by others who flocked to the scene and developed contiguous space over time. In Table 1, all developments, in terms of planned space, meet Garreau's 5 million square feet of office space, as a minimum to qualify as an edge city. Table 1 Some edge city developments Edge city Developer Planned office Developed space Employ. space as of 1993 as of 1993 (million sq. ft.) (million sq. ft.) (thousands) Irvine, CA Irvine Co. 45.3 33 165 Tyson's Til Hazel 50 28 80 Corner, VA (Hazel & Peterson) 180/284, NJ Local govt. 15 5 75 Schaumburg, IL Local govt. 20 11 71 Reston, VA Til Hazel 30 18 45 Research U.N.C. 22 14 40 Triangle Pk., NC Dearborn- Ford Land 8 4 25 Fairland, MI Devel. Rariton Ctr., Visceglia 30 11 20 NJ Brothers Park 10, Wolf 14 4 15 Houston, TX Companies I Missing are O'Hare, IL, King of Prussia, PA, Meadowlands, NJ, Anaheim, CA, Edens Expressway, IL, West Los Angeles, CA, and LAX, CA. V. Henderson, A. Mitra / Reg. Sci. Urban Econ. 26 (1996) 613-643 617 As a reference point, cities such as Richmond, Spokane, Memphis, Wichita, Birmingham, Albany, and Little Rock have less than 5 million square feet of office space.