What are Agglomeration Diseconomies?

An urban agglomeration is an urbanized area or human settlement that is typically characterized by vast spans of human-made surroundings and a high density of population. Agglomeration diseconomies refer to the economic inefficiencies that stem from agglomeration, such as high cost of living, shortage of biosphere reserves, and corruption, among others. However, a macroscopic analysis of urban agglomeration fails to delve into the intricacies of economic inefficiencies that affect particular cities. For example, the diseconomies of agglomeration in a city with a lower density of population such as Los Angeles would be vastly different from the diseconomies associated with more densely populated cities, such as New York. While higher transportation costs constitute a significant proportion of the diseconomies associated with agglomeration in Los Angeles, cost of housing is a far more important criteria in New York.

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Why are Agglomeration Diseconomies Important?

Housing costs are the most prominent of all expenses associated with agglomeration. In fact, such expenses constitute almost a third of total household expenditures. However, there is a noticeable difference between cost of housing in major cities and that in smaller towns and urban centers. Moreover, city dwellers are much more likely and seem much more willing to spend a greater proportion of their incomes on housing, compared to their counterparts in semi-urban or rural areas. Land regulations often determine the availability of housing facilities in a city, and thus, play a vital role in determining housing prices. Cities such as London have enforced stringent land regulations, which has resulted in limited availability of land. This has invariably turned London into one of the most expensive cities to buy housing anywhere in the world. Recent studies have been able to correlate the enforcement of more flexible land regulations with a much slower escalation in housing prices over large periods of time. Secondly, higher costs of mobility are often associated with large urban agglomerations. In fact, mobility cost is one of the primary determinants of a propertys value - the closer the property is to the amenities of a city, the higher is its valuation. This is because, in a real word scenario, the time taken for commuting is inversely proportional to the time availability for productive work - the higher the time spent in travel, the lower is the time available for productive work. Therefore, from an economic standpoint, every additional hour spent in travel is equal to one paid hour deducted from the days work. Thirdly, the rate of crime is typically higher in cities than in semi-urban or rural areas. Economists have derived a positive correlation between the size of a city and the crime rate. As a corollary, higher rates of crime result in higher expenditures incurred for the purposes of security. Lastly, exposure to higher levels of pollution is another tradeoff of residing in an urban agglomeration. The World Health Organization (WHO) conducted a study of pollution in urban areas and concluded that an astounding majority of residents of agglomerations were liable to suffer the perils of extremely high pollution levels. However, WHO also noted that because of a greater focus on environmental safety and health control in more advanced economies such as the United States and countries in Western Europe, the levels of air pollution in those countries were actually lower than in lesser developed countries. Thus, it is safe to conclude that with further economic growth, developing economies stand a good chance of improving their air pollution levels. Advancements in technology in the coming years are expected to further curb agglomeration costs. A case in point is the current development of smart cities - urban zones that have integrated electronic and digital technologies in municipal services such as waste management and pollution control, traffic control and public transportation. Smart cities are expected to bring about a noticeable reduction in transport, pollution and security costs for their residents.

Related Topics

• Network Externality
• Pigovian Tax
• Coase Theorem
• Agglomeration Diseconomies