Location of Firms within a Square Central Business District

Abstract

In a square central business district (CBD), with rectilinear (east-west and north-south) travel, production is assumed to require face-to-face transactions between firms. Each firm's locational decision therefore reflects travel costs between that location and all other CBD locations. The assumption that firms are uniformly distributed permits an analytical solution: rent contours are circular and office rent declines as the square of the radial distance from the center. Thus, in contrast to travel-only-to-the-center models, the rent function is concave from below; this property is shown to hold for arbitrary firm distributions. Endogenous firm distributions, investigated numerically, generate nearly circular rent contours.