Agglomeration Diseconomies of Traffic Congestion and Agglomeration Economies of Interaction in the Information-Oriented City

This paper presents a partial equilibrium model of land, labor, and transportation markets in an information-oriented city with traffic congestion of commuting and agglomeration economies of interaction. We derive the equilibria by numerical computations using specific utility, production, and congestion functions. The laissez-faire equilibrium is compared with the optimum. In contrast with the results of many previous papers, at the optimum the CBD becomes compact and the city more suburbanized than the laissez-faire equilibrium. We also analyze the effects of a Pigouvian tax system and subsidies on the spatial structure in the city.