Endogenous Vehicle-Type Choices in a Monocentric City

Motivated by several empirical studies showing a positive relationship between residential density and vehicle fuel efficiency chosen by the residents, this paper presents a modified monocentric city model with endogenous vehicle-type choices. Consumers are assumed to explicitly consider driving inconvenience in the choice of vehicle sizes, and the resulting commuting cost is a function of residential density. This vehicle-type choice problem is embedded in an otherwise standard monocentric city model. A convenience-related advantage in less-dense areas makes our bid-rent curve flatter than that in the standard model. Comparative static analyses suggest that an increase in commuting cost per mile, especially from increased unit cost of driving inconvenience, may induce spatial expansion of the city. Since driving inconvenience is lower in less-dense suburbs, the increased unit cost of driving inconvenience pulls people toward suburbs, potentially leading to urban sprawl. Part of comparative static analysis shows how the city's vehicle fuel efficiency depends on the city characteristics such as population and agricultural rent.