Is there order in the distribution of retail facilities?

For the past 20 years I am the proud owner of the leading economic consulting firm in Israel. The firm specializes in real-estate development (http://www.czamanski.com/). This morning, my partner (and ex-student) published a newspaper article with a list of the failing shopping centers in Israel.

The obvious question that the article raises is why are there failures among the shopping centers? From an academic perspective, a more interesting question is whether there is order in the distribution of retail facilities. Emergence of order in complex systems is linked to the self-organization processes. Urban landscapes are often rugged and irregular, yet their distributions display a type of structure that researchers traditionally identify as order. Theories such as the central place may be considered to be descriptions of self-organization processes. One of the most commonly used examples of such order in urban systems is the rank-size rule, sometimes called Zipf's law.

Here are some graphs depicting Israel's commercial facilities system and hinting at the existence of emerging order.

Growth in the total number of commercial centers

Ln Area versus Ln Rank

In order to test for presence of Zipf's law in the size distribution of commercial centers, we plot ln Area versus ln Rank. It is immediately clear from the above graph that the classic rank-size rule does not hold for any of the years: none of the curves can be approximated by a linear function.

Cumulative frequencies are plotted in the following figure.

Scaling of the cumulative frequency curves

It is evident that the cumulative curves are shaped quite regularly and the deviation of the large centers from the general trend observed in rank-size graph is imperceptible in this type of presentation. A number of mild steps in the cumulative frequency curves may signify a distinction between size groups. The generally smooth shape of the curves suggests that the distribution is represented by the whole range of sizes more or less evenly and that there is no clear size groups associated with a hierarchical structure. By performing scaling it is possible to demonstrate that the frequency distribution curves for the different years do in fact follow an identical pattern.

These graphs provide initial clues to the understanding of the structure of retail facilities in Israel. Contrary to some of the classic theories no clear hierarchy is observed in the size distribution of commercial centers. Zipf's law does not hold. However, a number of large commercial centers in the later years appear to be an exception from this law. Assuming that the self-organization processes are really taking place within the system, the large facilities may be considered "too big". A possible explanation is that their excessive sizes are a result of competitive decisions of developers, who may be prepared to incur loss in the short run, in order to insure control over a greater share of the market in future.

However, this does not seem to explain the failed facilities, inasmuch as the failures are among the smaller centers. Now I am waiting for my ex-student, Dr. Maria Marinov, to return from climbing mountains so that we can complete several papers on this topic.

Urban Alienation

I just read Matt Kahn extolling Boston as an urban place [http://greeneconomics.blogspot.com/]. Matt and his family were lucky to meet Paul Samuelson in a public place twice within one week.

Matt's experience reminded me of a lecture I gave to my urban economics students some years ago. I was trying to define a city. Among other characteristics of cities I mentioned the sociologists' view that cities are places in which one experiences alienation and where one does not often encounter on the street familiar faces.

Some months after that lecture I was marching down Fifth Avenue in New York City. Suddenly I heard a familiar voice from across the street shouting hello to me. It was a student from my urban economics class at the Technion tickled pink that he found a counter-intuitive example to his professor's ramblings.

Globalization

Today I heard on the local radio a social activist who presented an anti-globalization discourse and a plea. He asked that we fashion our consumption behavior by considering such issues as the exploitation of poor workers in developing economies. As it is, we over-consume. He gave an example of sports shoes for which we pay upwards of US$ 100. In the developing country where the shoes are manufactured, the workers who labored on the production of these shoes were paid about 25 US cents.

I was reminded of a story I heard many years ago from my economist father. While on an official visit to Indonesia he started walking from his hotel to some meeting place, a distance equivalent to 10 minutes walk. His host suggested that they mount a man-pulled rickshaw as a good alternative. When my father refused to be pulled by a skinny, bare-footed old man, the host suggested that if he does not allow the man to pull him the old man will starve.

Another argument that is frequently brought against removal of trade barriers is that ex post trade the process of adjustment in sectors that need to be reduced in size accelerates and will be very costly. The dislocation will affect a large portion of the labor force.

During a short visit in Canada on the eve of the implementation of NAFTA (North American Free Trade Agreement) I met a friend who owns a car parts manufacturing plant in Toronto. He was very apprehensive about the possible impact of NAFTA and speculated about moving his plant to the USA, closer to his market. Today, my friend's plant employs upward of 1,500 workers – a threefold increase.

Similar arguments are often made within countries. In Israel there exist massive subsidies of manufacturing activities that are located in the peripheral regions of the country. Generally, the plants take advantage of the subsidies in place of moving the activities offshore. Often, the activities are on the verge of closing. It is true that the plants create jobs. However, investment in human capital and training programs for the local population would create a more fundamental impact on the peripheral economies by creating an economy that is similar to the economy in the developed parts of the country.

Global Warming - An Alternative Viewpoint

"Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing ever happened" Sir Winston Churchill.

There is no doubt in my mind that there are significant externalities associated with the consumption of fossil fuels. At the same time, unlike some (see for example http://www.energybulletin.net/3322.html), I am convinced that we are far away from reaching Hubbard's peak in oil production. This I say having observed for the last three years monthly data on exploration, production and above all production costs and prices of oil and gas (see Canadian Energy Research Institute's Commodity Report – Crude Oil and Commodity Report – Natural Gas at http://www.ceri.ca/#Commodityreport).

Above all I remain a skeptic about the size of the anthropogenic influence on global warming. The model developed by Nir Shaviv (see http://www.sciencebits.com/CO2orSolar) and recently (partly) tested at CERN suggests that the major source of influence on the earth's temperature is solar activity. This alternative view, if true, has major repercussions for Kyoto type policies. Indeed, the vast amounts of resources that we are devoting to reducing CO2, could be usefully devoted to other income generating activities.

Branding cities

First, I wish a happy 88th birthday to the urban economist I know best -- my dad. Happy birthday to Stan Czamanski.

I do not think that it is disputable that Haifa is a most beautiful city. It is a home to some 500,000. In addition to the Technion – Israel Institute of Technology and Haifa University, Haifa hosts a myriad of hi-tech research and development labs and centers. It is a mini silicon valley. Unfortunately it is physically divided into two zones separated by an industrial area that includes a refinery and a variety of petrochemical plants.

Despite its apparent competitive edge Haifa is losing young people to Tel Aviv, the primate city in the country. And so, like in so many cities there is an ongoing debate in Haifa how to change the rate and direction of the city's evolution.

Next week a newly formed national NGO of architects will hold a major conference in Haifa on the rejuvenation of central cities and downtowns. The focus of this conference will be on Haifa. In anticipation of the conference, a number of workshops are being conducted in the city with the participation of residents. The purpose if to identify planning actions that can be used as levers for rejuvenation.

There is something genuine in the notion that purposeful actions can change the city's dynamics. It seems reasonable to suppose that urban self-organization processes can be redirected, at least slightly, by changing some key parameters in the context within which self-organization processes take place. Before an effort like this can yield results there is a need to identify these key parameters.

Urban economic theory has not been productive in yielding useful information for such exercises. Indeed, it has been concerned with generating insights that are very broad and at a resolution that places it far from the trenches where action takes place. So, in the absence of science folk medicine will have to do.

On a similar note…

Yesterday I gave an invited lecture to all the city managers in Israel. The only other speaker at the workshop was the mayor of the host city. The mayor spoke first and explained that his role as an economic leader is to generate income for the city's fisc by overcoming the city's inability to raise sufficient income through the property tax.

I thought of a number of questions during the mayor's presentation. What is the source of the city's attractiveness? What activities in the city make it unique on a world scale? How is the city promoting itself? Are there clusters of economic activities that create a competitive advantage to the city? Is there a basis for the branding of this city?

It turns out that little thought has been devoted by the city managers in the room to these questions.

Will urban open spaces remain or disappear?

In my city there is growing militancy concerning the need to protect open spaces. Every proposal to build a new project receives close scrutiny and more often than not vocal opposition. Many developers are reluctant to build in Haifa. Shortage of starter homes for young couples and upper-end housing for middle-aged people caused out-migration and a stagnant construction scene.

It is my presumption that the concern over open space is exaggerated. There is a natural economic tendency for the value of homes in proximity to open spaces to increase as these spaces become scarce. Thus, it is possible to think that there is an optimal amount of open space in each city. Beyond a certain point developers will prefer to build less volume and more expensive homes located next to parks.

In a paper published some years ago we presented a cellular automaton (CA) simulation model of a city and tested the results against an actual city [see Benguigui, L Czamanski D., Marinov, M., “The Dynamics of Urban Morphology: the Case of Petah Tikvah" in Environment & Planning B, 28, 2001, pp. 447 – 460]. The simulations results corresponded to reality for the test years and when extended into the future suggested that open space in cities does not disappear. Even when extending the computer runs into the far future, open space remains.

In a more recent project [see Benguigui, L., Blumenfeld, E., Czamanski, D., “The Dynamics of Urban Morphology” in Environment and Planning B, 33, 2006, pp. 269 – 284] we studied the spatial evolution of the Tel Aviv metropolitan area. The results suggest a particular pattern of formation of contiguous built-up areas. The number of built-up clusters grows and eventually stabilizes on a much smaller number.




There seems to be an economic intuition and some preliminary evidence that the self-organizing nature of cities will not eliminate urban open spaces.

The cost of urban planning

There is no doubt that urban planning creates potential welfare gains in the sense that it reduces the effects of inevitable negative externalities associated with urban life. But, observation of actual processes of land-use regulation leads to the conclusion that there can be little doubt about significant costs associated urban planning as well.

Last month Ed Glaeser and Bryce Ward published a working paper entitled "The Causes and Consequences of Land Use Regulation: Evidence from Greater Boston" [see
http://www.economics.harvard.edu/hier/2006papers/HIER2124.pdf]. In it the authors claim that the behavior of housing prices cannot be explained by the scarcity of land alone. Glaeser and Ward claim that regulatory restrictions on supply are to be blamed for at least some of the phenomenon.

My doctoral student Rafi Roth and I have been working with a simple model of real-estate developer whose investment decisions are influenced, by among other things, the characteristic time of development. We defined characteristic time as the time from the moment that initial property rights are purchased and until the income is received for the finished real-estate product that the developer has produced and sold.

It turns out that characteristic time is influenced principally by urban planners and that it varies in particular fashion across space. Furthermore, it is largely responsible for observed leap-frogging behavior of development, especially during periods of economic downturns. In some sense planning has a counter productive effect in the sense that it creates incentives to build away from existing built-up areas.

Moreover, it is possible that under some conditions the cost of planning actions is borne by lower income groups.

Where does the city end?

This week while presenting an economic argument about the formation of cities, I was asked a seemingly simple question by a student in my urban economics course. "Where is the boundary of a city and where does the countryside begin?" she asked.

The question immediately reminded me of two urban economists who crossed my academic path. Richard Florida replaced me in the early 1980s when I left Ohio State University for my present academic home at the Technion. In a Newsweek article some months ago [July 3-10, 2006] Dick Florida, guru of the creative class approach to urban development, suggested that to identify borders of a megalopolis one should observe at night the pattern of lights while flying above the area.

This was the suggestion that I heard many years before from my teacher of urban economics, Seymour Sacks. Chomping on a cigar (it was allowed then) Seymour started each lecture with a number that he fished out (seemingly) at random from a volume of the census. Seymour also claimed that the boundaries of cities can be identified from the air and at night.

In a recent study two colleagues and I attempted to identify the boundaries of Tel Aviv, while ignoring municipal boundaries. The basis for our study was a series of historic footprints of the built-up area, such as the following picture for the year 2000.



It is immediately apparent that depending on the resolution at which we observe an urban area all cities display lack of contiguity. There are vast amounts of open spaces without buildings. Some open spaces are small and create narrow corridors between buildings. Other open spaces are very wide.

We decided to consider street-wide open space corridors as part of built-up urban areas. We were able to identify a very large number of urban clusters within the Tel Aviv urban region. A description of this work was published as Benguigui, L., Blumenfeld, E., Czamanski, D., “The Dynamics of Urban Morphology” in Environment and Planning B, 33, 2006, pp. 269 – 284.

Based on these data, here is a suggestion for a precise identification of urban boundaries that does not require a plane trip at night. It is based on the concept of fractal. This indicator permits the identification of self-similarity.

By starting at the historic core of a city and by marginally increasing the area of the old core we can repeatedly calculate the fractal dimension of the area. [See for example Benguigui, L., Czamanski D., Marinov, M. and Portugali, Y., “When and Where Is a City Fractal?” in Environment & Planning B, 27, 2000, pp. 507-519]. We reach the city's boundary at the point that self-similarity ends.

Obviously there is a shortcoming in this method in the sense that we do not take into account functional geographic flows, etc. However, there is an advantage too. The method does not rely on data that include accidental aggregations based on data presented at the level of municipalities.

Is there order in the distribution of high-rise buildings?

The simple approach of economists to this question changed significantly in the last 15 years.

In the past the vision was that all people and activities in cities seek to locate in the closest proximity to some central place. Competition forces some to compromise and to select a location at some distance form the center. The image of a city as a sand pile that is populated by the tallest buildings at its center and increasingly lower buildings as the distance from the center increases was supplemented by an image of a "wave of expansion" of development from the center outwards.


This is an old story and obviously far from being realistic in the case of the vast majority of big cities in the world. Here is a picture of Tel Aviv.

In fact, the extant reality is so complex that we can ask "is there order in the distribution of high-rise buildings?" As you can imagine the answer is far from obvious.

Were we to mark on a map of a city, or better on a blank sheet, a black dot for each high-rise building in a city, it is quite likely that at first glance the result would look to us as a random distribution. In an initial analysis of Tel Aviv my research team has identified the formation of clusters - groups of high-rise buildings that are spatially contigous.

There is almost no research (at least economic research) concerning the frequency and spatial distribution of high-rise buildings. There are 3 or 4 researchers who are attempting to build cellular automaton (CA) type simulation models.

A new urban economics blog

A number of reasons motivated me to start this weekly blog.

First and foremost, I wish to communicate with my current and past students of urban economics. This fall semester I returned to teach my introductory urban economics course at the Technion - Israel Institute of Technology.

Second, the community of urban economists has not been forthcoming. It is not very communicative. Urban topics are not covered extensively in blog world.

Finally, I hope to contribute a somewhat different perspective on urban issues, one influenced by a backdrop of my home in Haifa, Israel.

In many ways this is an experiment. I am not sure whether the sparcity of urban issues blogs does not represent a market test of a lack of interest. I will try to bring here results of recent research and policy discussions.

And so wish me luck....