policymakers demonstrate

Skilled Cities and Efficient Urban Transport 367
In the industrial era, cities have enabled transport costs between large and
connected production plants to decrease substantially. Today, cities are the cradles
of new ideas that benefit firms of very different sizes. But this is not new;
cities are – and have been for centuries – the source of productivity gains as well
as technological and cultural innovations (Hohenberg and Lees, 1985; Bairoch,
1985). To a large extent, it is fair to say that the agglomeration of economic
activities in cities is the geographical counterpart of social and economic development.
However, these positive effects come with negative ones: congestion,
segregation, pollution, and crime. European cities are much older than American
ones. While European cultural heritage is an advantage for economic and
social development, it is also a major constraint when organizing and managing
mobility within cities. This should not conflict with the fact that wealth is
increasingly created in cities, a fact that holds for the European Union (EU) and,
more generally, for developed and emerging countries alike. And, although no
EU-level urban strategy exists (at least not yet), there is a growing recognition
that many large European cities face similar social and cohesion problems.
The city has a spatial extension because economic agents consume land,
which implies that consumers travel within the city. Therefore, an urban space
is both the substratum of economic activity and a private good (land) that is
traded among economic agents. The worldwide supply of land vastly exceeds
the demand for land. As a consequence, the price of land should be zero. Yet,
we all know that for reasons that do not depend on the quality of the housing
structure, housing costs vary enormously with the size of cities. Therefore, the
price of land reflects the scarcity of ‘something’ that differs from land per se.
The main objective of urban economics is to explain why cities – understood
here as metropolitan areas that extend beyond the core city limits – exist and
how they are organized; that is, to explain why jobs are concentrated in a few
employment centres and how consumers are spatially distributed within the
city according to their incomes and preferences. Central to the workings of a
city is the functioning of its land market, which allocates both economic agents
and activities across space, as well as the quality of the transport infrastructure
used by commuters and shoppers. Equally important are various types of social
networks that operate within very short distances. For example, informational
spillovers affect positively the productivity of the local R&D sector, whereas
neighbourhood effects are often critical to sustaining criminal activities in particular
urban districts. To understand cities, we must view them not simply as
places in space but as anchored systems of market and nonmarket interactions.
Looking at cities through the lens of microeconomics sheds new light on
issues that are often poorly understood otherwise. Many prosperous regions are
city-regions or regions that accommodate a dense network of medium-sized
cities; an example is the Randstad in the Netherlands. This is backed up by
casual evidence: among the top 10 NUTS-2 regions of the EU in terms of gross