A General Equilibrium Model of Australia's Premier City

Australian cities suffer from urban sprawl, leading to long average commute distances and high energy use by urban transport. To investigate this problem, we define and construct a medium-sized general equilibrium model of Australia's second-largest city, Melbourne. Individuals are modelled as utility maximisers who face a discrete number of choices. We follow the logit approach, where the probability of an individual pursuing an option (for example, living in high-density housing in zone A while working in zone B) is proportional to the utility derived from that option, taking into account the cost of the option and the effect of this cost on the total utility obtainable with given income-producing opportunities. The spatial layout of the city, through the cost of travel from one zone to another, influences the pattern of land rents, industrial activity, and housing location and density. As in other general equilibrium models, market-clearing and accounting equations allow the whole economy of the city to be presented within an integrated framework. The result is a fairly general economic model of urban land use and travel demands. We use it to analyse the effects of population growth and policy initiatives on transport usage.