Congestion, Agglomeration, and the Structure of Cities

Jeffrey Brinkman

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

May 23, 2013

FRB of Philadelphia Working Paper No. 13-25

Congestion pricing has long been held up by economists as a panacea for the problems associated with ever increasing traffic congestion in urban areas. In addition, the concept has gained traction as a viable solution among planners, policymakers, and the general public. While congestion costs in urban areas are significant and clearly represent a negative externality, economists also recognize the advantages of density in the form of positive agglomeration externalities. The long-run equilibrium outcomes in economies with multiple correlated, but offsetting, externalities have yet to be fully explored in the literature. To this end, I develop a spatial equilibrium model of urban structure that includes both congestion costs and agglomeration externalities. I then estimate the structural parameters of the model by using a computational solution algorithm and match the spatial distribution of employment, population, land use, land rents, and commute times in the data. Policy simulations based on the estimates suggest that naive optimal congestion pricing can lead to net negative economic outcomes.

Number of Pages in PDF File: 55

Keywords: Congestion, agglomeration, externalities, spatial equilibrium, urban structure, estimation

JEL Classification: R13, C51, D62, R40

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Date posted: June 1, 2013  

Suggested Citation

Brinkman, Jeffrey, Congestion, Agglomeration, and the Structure of Cities (May 23, 2013). FRB of Philadelphia Working Paper No. 13-25. Available at SSRN: http://ssrn.com/abstract=2272049 or http://dx.doi.org/10.2139/ssrn.2272049

Contact Information

Jeffrey Brinkman (Contact Author)
Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )
Ten Independence Mall
Philadelphia, PA 19106-1574
United States
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