Why You’d Want to Live Here: Spatial Equilibria from the Industrial Revolution

Why You’d Want to Live Here: Spatial Equilibria from the Industrial Revolution to the Information Age

Our 2021 white paper takes up a very basic question: why do people live where they do? We draw on insights from economists, historians, and urbanists to try to understand why some places thrive, why other places flounder, and why the fates of particular places evolve over time.

In Section 1, we sketch a theoretical framework, relying on ideas formulated by spatial and urban economists. Our framework involves three core claims. First, individuals decide to live in particular locations to the extent that those places can deliver the right mix of benefits, including good wages, affordable rents, and high-quality amenities. Second, wages, rents, and amenities are determined by what we call local advantages in production and consumption, and advantages in production and consumption stem from natural endowments, human interventions, or economies of agglomeration. Third, local advantages evolve when new technologies emerge, government policies change, or cultural preferences adjust. As we try to show, these are the basic forces that propel certain places, like twenty-first century London, to success—and doom other places, like late-twentieth century Detroit, to failure.

Next, in Section 2, we turn to the past, applying our theoretical framework to two historical episodes. First, we consider the original wave of urbanisation that swept Britain in the nineteenth century. We show how two sets of technological developments—improvements in agricultural practices and the transition to a coal-dominated energy mix—paved the way for rapid growth in cities like those in Britain, including London. Second, we explore urban decentralisation in twentieth-century America. We explain how the introduction of the automobile, combined with newly evolved cultural preferences, nudged Americans out of the old, cold, and dense cities in the North and pulled them into newer, sunnier, and lower-density settlements, particularly in the Sun Belt.

Finally, in Section 3, we consider the future, reflecting on the ways that new communications technologies may change where people decide to live and work in the coming decades. We argue that the advantages in production that superstar cities have monopolised over the last quarter-century have started to disperse—and that a more egalitarian urban landscape, where secondary cities flourish, is now emerging as a result.