Location Theory:
The Foundation of Planning and
other Economic Theories and Models
Location Theory
: the geographic location of economic activities
: addresses the questions of WHAT economic activities are
located WHERE and WHY?
: rests primarily on the assumption that agents act in their own self interest. Firms choose
locations that maximize their profits and individuals choose locations that maximize
theirutility.
Early location theory was concerned with agricultural land use, (Johann von Thünen) and
with industrial location (Alfred Weber).
Modern location theory has been concerned with the real individual, rather than with
rational economic man reflecting
the influence of behavioral geography.
David Ricardo
David Ricardo (19 April 1772 – 11 September 1823) was an English political economist,
and was one of the most influential economists. His most famous work is his theories on
labor value, rent and comparative advantage.
: known for his differential rent theory based on fertility but he also gave "situation" as a
possible cause of rent. “If all land had the same properties, if it were unlimited in quantity,
and uniform in quality, no charges could be made for its use, unless where it possessed
peculiar advantages of situation”.
• Economic rent: the difference between the produce obtained by the employment of two
equal quantities of capital and labor
: the payment over and above what is necessary to stay in business
Alfred Weber
Alfred Weber (30 July 1868 – 2 May 1958), a German economist, sociologist, and
theoretician of culture. Works were influential in the development of modern economic
geography. Author of Theory of the Location of Industries, studied industrial location
decisions, and built on von Thunen’s theory by considering not only the costs of getting
goods to market, but also the costs of transporting material inputs to the manufacturing plant.
Considered Transportation cost as the direct function of the weight of the item and distance
shipped.
● He asserted that “all else being equal, manufacturers will locate their plants either at the
market or the source of the input depending on whether or not the final product gains weight
or loses weight in the manufacturing process”.
● Weber formulated a theory of industrial location which industry located
● Formulated a theory of industrial location in which an industry is located where the
transportation costs of raw materials and final product is at a minimum (least-cost location).
His model allowed for three types of locations:
Weber’s Weight-Losing Case
The weight of the final product is less than the weight of the raw material going into making
the product
The weight gaining case is illustrated in
Figs. 4, 5 and 6. The optimal location
of the processing plant in this case is at
the market.
Transportation cost for the product
delivered to the market will be lowest
of all if the processing plant is located
at the market
Weber established that firms producing goods less bulky than the raw materials used in their
production would settle near the raw-material source. Firms producing heavier goods would
settle near their market. The firm minimizes the weight it has to transport and, thus, its
transport costs
William Alonso
● Extended the von Thünen model to urban land uses.
● His model gives land use, rent, intensity of land use, population and employment as a
function of distance to the CBD of the city as a solution of an economic equilibrium for the
market for space.
● He postulated that there is an inverse relationship between transportation cost and rent such
that if transportation cost is high, then the rent is low.
The Big Rent Curve Theory
Alonso Model
He developed the "Bid-Price Curve": A set
of combinations of land prices and distances
among which the individual is indifferent (i.e.
satisfied with the combination of land price as
well as the distance at some point).
Land Use Determinants
Physical Determinants
The physical and natural features of the land may serve as one of the considerations in
assessing the land's capability and suitability to support certain uses, and can be considered as
determinants of land use decisions.
1. Topography
2. Geology
3. Climate
4. Soil
5. Bodies of Water
6. Environmentally Critical Area
Economic Determinants
The economic condition of the land and the surrounding area is an essential criterion in
arriving at a development decision. Examples to this are the following:
1. Land Value Location
2. Cost of Land Development
3. Increase/Decrease in Population
Tastes
4. Changes in Technology
5. Changes in Money Supply
6. Changes in Planning Controls
Public Interest
Public action that seeks to assure livability and sound development in the city as land is put
to urban use. It involves the notion of control for public ends as they may be distinguished
from private, economic and social ends. Public interest values come into play in legalistic
actions of formal government organizations. This is referred to as "actions taken in the
public interest." Among these concerns are:
1. Livability
2. Amenity
3. Safety
4. Convenience
5. Economy
There are other factors for consideration in deciding project developments but it must ensure
that the highest and best use* of land must be established and that the appropriate
development be pursued.
*HABU - use in a manner that provides an optimum return to their operators and/or society.
· - use for the purpose of which it has the highest comparative advantage or least comparative
disadvantage relative to other uses.
• Need for planning and other types of land development (real estate) due to population
growth, migration patterns, etc.
• Societal trends due to changing living patterns, changes in class structure, and changes in
work conditions and lifestyles. - changes are brought about by new technology, e.g. use of
mass transit systems, new road systems, new forms of communication, etc.
• Changing values and attitudes
- Growing awareness and appreciation of healthier surroundings
- Requirements of people belonging to different social classes (suburban neighborhoods vs.
downtown neighborhoods.
(Urban Economic Structure & Spatial Growth Models)
ECONOMIC STRUCTURE - the geographic location and distribution of activities within
✓ All urban economic activities (Basic and Non-Basic) compete for urban space - and some
an urban or metropolitan area
✓ Because some urban economic activities are more competitive than others, these activities
are more successful than others
✓ Almost all cities exhibit the same pattern of urban economic structure, with only minor
are typically found in similar kinds of urban location
variations from city to city
GENERAL PATTERNS IN URBAN ECONOMIC STRUCTURE BY LAND USE
1. Central Business Center
o The city's center. The focus of transportation routes and the foremost location of
commercial, social and business activities
o Retailing ranges from huge department stores to small specialized shops
o The city's financial and
organizational hub, with large
banks.office buildings, government
centers, hotels and corporate
headquarters
o The social and cultural life of the
city also focuses on the CBD
(theaters, museums, restaurants,
night spots, etc.)
2. Wholesale and Light Manufacturing - surrounds the CBD
3. Low Residential Areas - a zone in transition. Often this is where the slum areas are
located, with population density very high, poverty quite common, and crime being a serious
problem.
4. Medium Class Residential Areas - the independent working men's home
5. High Class Residential Areas - the zone of better residences of high income families,
where exclusive residential districts are located, and population density is lower
6. Heavy Manufacturing District
7. Commuters Zone - residential suburbs and exurbs outside city limits
8. Outlying Business Districts; Residential and Industrial Suburbs _
THREE (3) MODELS OF URBAN ECONOMIC STRUCTURE
1. THE CONCENTRIC RING MODEL Ernest Watson Burges (1886-1966)
- An urban sociologist at the University of Chicago 2411 President of the American
Sociological Association (ASA) in 1934 - Some of the books he wrote
> Introduction to the Science of Sociology (1921, with Robert E. Park)
> The City ( 1925, with Robert E Park and Roderick D McKenzie) .
> edited and published the Proceedings in 1935 under the title, 'The Human Side of
Plannin”
> conceptualized one of the earliest theoretical models to explain urban social
structures "The Concentric Ring Model"
• With a background in human ecology theories,
the model was the first to give the explanation of
distribution of social groups within urban areas in
concentric rings.
• An urban version of Von Thunen's regional land
use model developed a century later, it was based
on a case study in Chicago in 1920s.
• Observations noted by Burgess:
- A correlation between the distance from
the CBD and the wealth of the inhabited
area (e.g. Wealthier families tended to live
much further away from the CBDs)
- As the city grew, the CBD would then
expand causing same effect lo the other rings
Criticisms:
• It assumes an isotropic plain - an even, unchanging landscape
• Physical features - land may restrict growth of certain sectors
• Decentralization of shops, manufacturing industry, and entertainment
• Urban regeneration and gentrification - more expensive property can be found in 'low class'
housing areas '
• Many new housing estates were built on the edges of cities in Britain
• II does not address local urban politics and forces of globalization
• The model does not fit polycentric cities, for example Stoke - on Trent
2. THE SECTOR GROWTH MODEL Homer Hoyt (1895 -1984)
- A land economist, real estate appraiser and a real estate consultant
- Established the Homer Hoyt Institute’
- Some of the books he wrote: Principles of Real Estate co-authored with Arthur Weimer,
went through seven editions and he published in a variety of professional and academic
Journals.
- proposed in 1939 a modification of the original work of Burgess and developed the
"Sectoral Model".
● Accepted the existence of CBD, however suggested that zones expand outward from the
city center along transport arteries.
● Theorized that cities tend to grow in wedge - shaped patterns emanating from the CBD and
centered on major transport routes ● It attempts to state a broad principle of urban
organization. The model explains an outward progression of growth.
● Observations noted by Hoy:
- Common for low-income households to be near railroads while commercial
establishments follow business thoroughfares
- Recognition of various transport routes into an urban area (e.g. Railroads, seaports
and tramlines) meant greater access
- Higher level of access meant higher land values
● A general rule: Hoyt for old cities; Burgess for recent ones
Criticisms:
● The theory is based on early 20th century transport; does not make allowance for
privatization of automobiles.
● Narrow focus: height of building; mixed land use zones
● Physical features - land may restrict growth of certain sectors
● The growth of a sector may be limited by a leapfrog approach
● Notes that while a city may have formed a CBD, similar Industries may have formed near
11, specifically those with common land - use and financial requirements.
● A good example would be hotels In airport location.
● The number and kinds of nuclei mark a city's growth.
● Critical to this model is the observed increase in car ownership resulting to greater
movement
● Some concerns not addressed by the former models can be seen here: - Suburbanization
and decentralization; accommodation of irregularities; time dimension; flexibility
● Distinction of the CBD may not be too clear.
Chauncey Harris (1914- 2003) & Edward Ullman (1912-1976) Chauncey Harris:
● was a pioneer of modem geography. Some of his works are 'The Nature of Cities” and
“Functional Classification of Cities in the United States”
● published the “Annals of the American Academy of Political and Social Science”,
described a model that had prophetic relevance for American cities in the later 20th century.
Edward Ullman:
- an American geographer; proposed that trade was an interaction based on
3 phenomena: complementarity, intervening opportunities, and transferability of commodities
- Ullman noted that while a city may have formed a CBD, similar industries may have
formed near it, specifically those with common land use and financial requirements.
● A good example would be hotels in airport locations.
● The number and kinds of nuclei mark a city's growth.
● Critical to this model is the observed increase in car ownership resulting to greater
movement.
● Some concerns not addressed by the former models can be seen here: - Suburbanization
and decentralization; accommodation of irregularities; time dimension; flexibility
● Distinction of the CBD may not be too clear.
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CENTRAL PLACE THEORY WALTER CHRISTALLER
WALTER CHRISTALLER
- A German Economist / Geographer that formulated the central place theory in 1933 in his
pioneering work “Central Places in Southern Germany”
- He claims that there is an overall ordering theory that explained the distribution of urban
centers, or Central Places, as well as their size and number in a given region.
CENTRAL PLACE THEORY
● Explains the spatial arrangements, patterns and distribution of urban areas and human
settlements.
● Extends the idea to the case where there is a hierarchy of cities as well as a distinction
between urban and rural areas.
● Settlements simply function as ‘central places’ providing services to surrounding areas
URBAN HIERARCHY
"Urban Hierarchy is based on the functions available in a city"
City
Town
Market Town
Village/Hamlet
Boundary
● Higher-order places are more widely distributed and fewer in number than lower-order
places
● Lower-order central places have small market areas and provide goods and services that
are purchased more frequently than higher-order goods and services
CONCEPTUAL ELEMENTS Ranking/Order of Central Places
● HIGHER ORDER - Larger number of central functions; bigger market area
● LOWER ORDER -Lesser number of central functions; smaller market area.
Ranking/Order of Goods and Services
● LOW ORDER - Those everyday use (Convenience Stores, Sari-Sari Stores)
● MEDIUM ORDER - Those needed frequently but not every day (Drugstores, Banks,
Barber Shops)
● HIGH ORDER - Those needed occasionally (Furniture Shops, Legal or Medical Services)
TWO BASIC CONCEPTS
1. THRESHOLD - Minimum number of people required to support any good or service
outlet established at central place.
2. RANGE - Maximum distance that a consumer is willing to travel to obtain certain goods
or services.
ASSUMPTIONS
● An even (flat) terrain
● Evenly distributed population
● Evenly distributed resources
● Similar purchasing power
● Preference for the nearest market
● Equal transportation cost (proportional to distance)
● Perfect competition
SHAPE
THREE PRINCIPLES IN THE ARRANGEMENT
Hexagons of lower orders are nested within hexagons of higher orders which is known as the
Nested Pattern of Hierarchy
Christaller identified fixed relation between 2 connecting levels of hierarchy (Towns and
Cities) that is the K value
K indicates the number of complementary area of lower order center served by the next
higher order center including itself.
CRITICISMS
● An Isotropic Surface is rarely found in
real world
● Behavior of consumer & seller are not
always rational
● Humans are not always an optimizer
rather a satisfier
● The hexagonal pattern of the central place
is rarely found
● The theory is suitable primarily for
agricultural regions because modern factors
such as communication, transport, etc. have
reduced the distance between buyer & seller
● The fixed value of K gives a poor
approximation of reality and all take
● place together in real-world in urban areas
STRENGTH
● clear and systematic explanation of the distribution of cities and towns in a region. ●
explain the economic relationships between different sized settlements.
● Helps urban planners and policymakers to understand the spatial organization of urban
areas
● framework for analyzing and predicting the behavior of consumers and producers in
different settlements
● has been found to be applicable in many different regions and countries around the world
WEAKNESSES
● Assumes a uniform and isotropic plain, which does not exist in reality
● Ignores the impact of political and historical factors on the spatial organization of urban
areas
● Does not consider the impact of cultural or social factors on the location and distribution of
urban settlements.
● Assumes that consumers will always choose the closest and most convenient place to
obtain goods and services
● Does not account for the impact of technology on the spatial distribution of settlements.
