7. Land for Industry in a One-Industry Ribbon Town

In this chapter, I incorporate land for production in the export industry. There are two implications here from the fact that all firms must now be spread out in space. First, some firms will be closer to Point O and others further away. Second, some firms will be closer to workers’ residences and others further away. How are firms to reimburse workers for their cost of commuting? In addition to direct and indirect compensation, there is now a third possibility: hybrid compensation. Under hybrid compensation, firms indirectly compensate workers for the cost of commuting to the outer edge of the production area and directly compensate them for commuting costs within the production area. At any give location within the production area, firms therefore cover the costs of shipping to Point O and direct and indirect compensation of labor. Firms compete for more profitable locations until finally land rents in industrial areas generate zero excess profits everywhere. Workers similarly compete for residential land until finally there is no advantage for anyone to change location. The organization of the urban economy here is understood by focusing on the role of the marginal firm and the marginal worker under a notion of hybrid compensation. The model in this chapter envisages equilibrium in three markets: explicitly a single market for exports and a single market for land, and implicitly a single market for labor inside and outside the urban economy. This model is similar to the Mills model. However, because the Mills model does not consider compensation of commuting costs for workers, it does not ensure labor market equilibrium inside and outside the city.