Urban Growth and Subcenter Formation: A Trolley Ride from the Staples Center to Disneyland and the Rose Bowl

Abstract

There have been long-term trends of urbanization and sustained growth across developed and developing countries over the past two centuries. Not only have more cities formed, but the leading metropolises have grown larger, with a number of peripheral subcenters developing over time. Conventional models of urban growth are limited, in that commuting cost and congestion eventually result in decreasing returns in a monocentric city as population becomes very large. In our paper, we construct a general-equilibrium model with dynamic interactions between spatial agglomeration and urban development. In contrast with the conventional endogenous urban growth framework, our paper models explicitly the underlying growth-driving mechanism, namely location-dependent knowledge spillovers. Our contribution allows endogenous development of subcenters to offset diminishing returns from urban congestion, thus permitting sustained city growth.