Solving Urban General Equilibrium Models by Fixed Point Methods

Abstract

This chapter discusses solving urban general equilibrium models by fixed point methods. The so-called “new urban economics” that has emerged makes use of quite abstract models as its principal tool of analysis. Virtually all of these models may reasonably be referred to as urban general equilibrium models because, like other general equilibrium models in economics, they are concerned only with equilibrium situations in which prices are such that all markets clear. These models are typically rigorous, in the sense that they are based on microeconomic theory and are logically consistent, and unrealistic, in the sense that they ignore many important characteristics of real cities. Initially, economists were happy to sacrifice realism for rigor, on the excellent principle that models that yield results are more interesting than models that do not. But as time has gone by and the characteristics of simple urban general equilibrium models have become well-known, there naturally have been attempts to make them more realistic.