The Model of territorial optimum

A territory becomes an increasingly important aspect of a supply-side analysis. Such spatial categories as agglomeration forces, social capital and accessibility augment neoclassical production functions in order to identify the role of territorial specifics in spurring economic growth. The heterogeneous territory, however, is not analyzed on the utilitarian dimension. Taking it into account we introduce a category of territorial utility determined by territorial assets and their accessibility. The main objective of this paper is to present how territorial utility might be formally incorporated in the mainstream economics within the framework of the model of territorial optimum. The optimum is derived on the assumption of product maximization using the territorial utility constraint. Shaping the development policy regional authorities aim to maximize production in accordance with the territorial utility which reflects expectations of inhabitants. Hence, the process of pursuing the territorial optimum embodies an integrated territorial approach to development. In order to put the formal model into practice its empirical illustration is presented. Using an example of the Polish NUTS-2 region of Lower Silesia four alternative scenarios of territorial utility are tested. A conclusion is drawn that making effective use of endogenous potentials of the whole heterogeneous region might be both economically productive and socially utilitarian. The concept of territorial optimum is an attempt to formally define the sophisticated category of territorial cohesion.