This computable general equilibrium model determines the interactions of profit-maximizing firms from three different industries with each other and with utility-maximizing residents. Using a fixed-point equilibrium methodology, the size and tolls for the transportation system are determined to minimize total transportation costs, including land costs, tolls, and the value of residential travel time.
Three industries are modeled: manufacturing, retail, and services. Their interactions are determined by parameters derived from U.S. Input-Output data. Because the model includes multiple industries and the retail industry, three modes of traffic travel are evaluated: commuting traffic, shopping traffic, and freight traffic.
Two technological changes are analyzed: smart transportation and changes in firms’ production functions. The model finds that smart transportation systems do save significant transportation costs, but provide only a slight increase in utility. As firms continue to use more services, the deficit dividend declines and the loss in utility levels is minimized.
Resident preferences also change over time. The most beneficial change, in terms of decreasing deficit dividend and increasing utility levels, is an increased preference for leisure time. A desire for larger lots leads to population decentralization.
Two policies are also reviewed: the closing of the trade deficit and zoning. When the trade deficit is closed, the manufacturing sector increases in size and industrial production decentralizes. Zoning can be modeled with only one restricted industry or multiple restricted industries, an extension in the literature. Residential-only zoning with a minimum land rent above zero creates a city with vacant land. Asymmetric zoning is found to have more negative effects on residents than symmetric zoning.