policymakers demonstrate

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coordination requires commitment on the part of some agents, which is not
always possible. Finally, it would be futile to seek a model based on a unified
theory of cities that would appeal equally to economists, geographers, architects
and urban planners. Therefore, developing LUTI models is a formidable
challenge. It is only recently that researchers have tried to build such models in
line with the basic principles of urban economics (de Palma et al., 2015).
In principle, LUTI models help us understand the effect of one particular policy
intervention and ultimately answer the important question of the ideal urban
form. We begin to understand the different mechanisms that come into play:
agglomeration economies, congestion, environmental externalities, as well as
the impacts of policy instruments (land use, buildings regulation, transport, and
parking pricing and capacity). However, our knowledge is still partial, as most
studies focus on only one or two mechanisms and on only one instrument at
a time. Moreover, most analyses focus on an ideal government planner, while
in the real world, political authority is dissipated over sometimes overlapping
jurisdictions. The new LUTI model developed by the Netherlands CPB (Bureau
for Economic Policy Analysis) provides a good example of what can be accomplished
in terms of a detailed understanding of the effects associated with a
given policy (Teulings et al., 2014).
9.8 Where Do We Stand?
1. Cities – but not all of them – have been and still are the main engines of cultural,
economic, and social development. By encouraging social interactions
and the exchange of ideas, cities allow for a finer division of labour and the
quick adoption of innovations. As new ideas are often a new combination of
old ideas, connecting people remains crucial for the Schumpeterian process
of innovation to unfold. As human capital is the main production factor in
knowledge-based economies, ignoring the role played by cities often leads governments
to design policies that are harmful (not on purpose, of course!) to the
economic fabric of their countries.
Not all cities are equally affected by innovation and growth; inequality cuts
through the urban system. History tells us that in each period of time there are
vibrant as well as dormant cities. If anything else, the development of human
capital should be the main target of urban policies. As accurately argued by
Glaeser (2011), the oversupply of structures and infrastructures is the hallmark
of stagnating and declining cities. Rather than spending billions of euros on
large infrastructures and fancy buildings, local governments should facilitate
movement in cities by means of congestion pricing and promote the supply of
affordable housing.
What is more, housing and transport markets are intimately intertwined with
local labour markets. As a consequence, European or national employment