Aggregate Land Rents, Aggregate Transportation Costs and Expenditure on Public Goods

Using residential location theory, the authors investigate the relationship between three economic aggregates in the city -- aggregate land rents, aggregate transportation costs, and expenditure on public goods. Differences in land rents partially reflect differences in transportation cost, as has long been recognized. However, little work has been done on the relationship between aggregate land rents and aggregate transportation costs in the city. In a general model, the ratio of these two depend on the shape of the city, and on the transport cost function. The results suggest that partial equilibrium analysis often produces erroneous conclusions. In the absence of congestion, and where public goods are the only cause of urbanization, the Henry George theorem that aggregate land rents equal expenditure on the public good in a city of optimal population size holds.