Wenban-Smith, Hugh B.
(2009)
Economies of scale, distribution costs and density effects in urban water supply: a spatial analysis of the role of infrastructure in urban agglomeration.
PhD thesis, London School of Economics and Political Science.
Abstract
Economies of scale in infrastructure are a recognised factor in urban agglomeration.
Less recognised is the effect of distribution or access costs. Infrastructure can be
classified as: (a) Area-type (e.g. utilities); or (b) Point-type (e.g. hospitals). The former
involves distribution costs, the latter access costs. Taking water supply as an example of
Area-type infrastructure, the interaction between production costs and distribution costs
at settlement level is investigated using data from England & Wales and the USA.
Plant level economies of scale in water production are confirmed, and quantified.
Water distribution costs are analysed using a new measure of water distribution output
(which combines volume and distance), and modelling distribution areas as monocentric
settlements. Unit distribution costs are shown to be characterised by scale economies
with respect to volume but diseconomies with respect to average distance to properties.
It follows that higher settlement densities reduce unit distribution costs, while lower
densities raise them.
The interaction with production costs then means that (a) higher urban density
(“Densification”) is characterised by economies of scale in both production and
distribution; (b) more spread out settlement (“Dispersion”) leads to diseconomies in
distribution; (c) “Suburbanisation” (expansion into lower density peripheral areas) lies
in between, with roughly constant returns to scale, taking production and distribution
together; and (d) “Constant density” expansion leads to small economies of scale.
Keeping (per capita) water supply costs low thus appears to depend as much on density
as size.
Tentative generalisation suggests similar effects with other Area-type infrastructure
(sewerage, electricity supply, telecommunications); and with Point-type infrastructure
(such as hospitals), viewing access costs as distribution costs in reverse. It follows that
the presumption in urban economics that such services are always characterised by
economies of scale and therefore conducive to agglomeration may not be correct.
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