The idea of income elasticity of demand (We can consider city size as demanded good) in city formation came from “the soccer field”. You push the ball, if you have enough power; otherwise, welcome to hell!

The same challenge happened in almost all poly-centric metropolitans. The traditional CBDs were not able to tolerate the demanded growth. People/government seeks alternatives and ended up in the poly-centric pattern, inevitably (Joel Garreau, Edge city life on the new frontier, 1991).

Yet, the question is how the optimal size of the city and economics correlated and how this correlation (if exists) interpreted by economic models. Surprisingly, all reading assignments of this week came from the Krugman’s school of thoughts. Paul Krugman (Economics Nobel Prize winner, 2008) analyzed the equilibrium and the optimal resource allocations in a mono-centric city under the exploitative competition of economic sub-sectors. He believes on the macro-economic impacts and always makes a comparison between the constant elasticity of substitution (CES) and the variable elasticity of substitution (VES).

Left to right; Becker, McFadden, and Krugman

On the other side, 
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Gary S. Becker brought the idea of micro-impacts of individuals in metropolitan areas; how mass population dictates the size of city and how the dynamic relation between macro and micro scales works (The Economic Approach of human behavior, 1976, University of Chicago, He won the Economics Nobel Prize sixteen years after publishing this book in 1992. Becker is judged by many to be the most influential economist alive). The idea of Becker has been followed by Daniel McFadden and his assistant Kenneth Train for almost two decades. (McFadden also received the Nobel Prize in 2000” For his development of theory and methods for analyzing discrete choice”). McFadden introduced the concept of “Macro-Micro-Hybrid” model. He argues that the size of an economy in general and city in particular (they consider city as economic target and the size of the city as demand) comes from not only the macro-economics of Top-down model (Krugman’s idea), but also is strongly related to micro-economics of bottom-up model. In addition to these two models there is the third model to bridge these models which called hybrid model (Combining Bottom-Up and Top-Down, Christoph B¨ohringer, Thomas F. Rutherford, Rutherford calls this model as soft-link).

By way of illustration, the size of the city as a variable is getting influence by a number of parameters. These parameters are divided into two categories;

-          Macro Level; which is the economic sub-sectors such as industries, agriculture, and energy.

-          Micro Level; consisting of Individuals living in city. Following figures depicts how these two models linked. The third model matches the bottom-up (Micro) and top-down (Macro) models and brings the ability of dynamic feedbacks between two main models.

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Endnotes:

1-      http://www.ipcc.ch/ipccreports/tar/wg3/index.php?idp=310

2-      Combining Bottom-Up and Top-Down, Christoph B¨ohringer, Thomas F. Rutherford

3-      Combining Top-Down and Bottom-Up in Energy Policy Analysis: A Decomposition Approach, Christoph BÄohringer and Thomas F. Rutherford

4-      The synthesis of bottom-up and top-down in energy policy modeling, Christoph Böhringe Energy Economics, Volume 20, Issue 3, 1 June 1998, Pages 233–248

5-      Exploring the gap ☆: Top-down versus bottom-up analyses of the cost of mitigating global warming, Deborah Wilson, Joel Swisher, Energy Policy, Volume 21, Issue 3, March 1993, Pages 249–263, Policy modelling for global climate change

6-      Integrating the bottom-up and top-down approach to energy–economy modelling: the case of Denmark, Henrik Klinge Jacobsen, Energy Economics, Volume 20, Issue 4, 1 September 1998, Pages 443–461

7-      Hourcade, J.-C., M. Jaccard, C. Bataille, and F. Gershi, “Hybrid Modeling: New Answers to Old Challenges,” Energy Journal–Special Issue, 2006, pp. 1–12.

8-      Computable General Equilibrium Models and Their Use in Economy-Wide Policy Analysis: Everything You Ever Wanted to Know (But Were Afraid to Ask) Ian Sue Wing Center for Energy & Environmental Studies and Department of Geography & Environment Boston University and Joint Program on the Science & Policy of Global Change Massachusetts Institute of Technology

9-      Hybrid Modeling: new Answers to old Challenges introduction to the Special issue of The Energy Journal, Jean-Charles Hourcade, Mark Jaccard, Chris Bataille, Frédéric Ghersi

10-  A hybrid Top-down/Bottom-up model for energy policy analysis in a small  open economy - the Portuguese case,  Sara A. Proença et al.

11-  EXTENDING GENERAL EQUILIBRIUM TO THE TARIFF LINE: U.S. DAIRY IN THE DOHA DEVELOPMENT AGENDA, Rutherford et al.

12-  TRACE (1999), Elasticity Handbook: Elasticities for Prototypical Contexts, TRACE; Costs of private road travel and their effects on demand, including short and long term elasticities; Prepared for the European Commission, Directorate-General for Transport, Contract No: RO-97-SC.2035,