The purpose of this paper is to investigate the effect of teleworking on the overcentralization to a large city.
In Japan, urban population suddenly increased with economic growth after World War II, and about 60% of the total population lived in urban area in 80's. Office demand increased with office automation in the latter half of 80's, and land values remarkably gone up. As a result, the remarkable rise of land value brought many problems such as aggravation of house circumstances or expansion of the asset difference. On the other hand, an advance of communication technologies makes dispersion of an office by telework possible, and is hoped that it relaxes city concentration.
One of the theoretical subjects in recent urban economics is explaining spatial agglomeration by micro-economic theory. In a problem of this kind, it is important to explain what kind of interaction among firms and households cause spatial agglomeration. Starrett [12] describes that agglomeration in the homogeneous space cannot happen under perfect competition. On this account two methods explaining spatial agglomeration are picked up in Fujita and Thisse [2]. One is a method by (I) externalities under perfect competition, and the other is a method by (II) imperfect competition. Following the terminology of Scitovsky, type I explains spatial agglomeration with “technological externality”, and type II explains it with “pecuniary externality”. Furthermore, type II is divided into (II-1) increasing returns under monopolistic competition and (II-2) spatial competition under strategic interaction.
In most cases, these both externalities cause the spatial agglomeration of economic activity. Both are different in the work. On this account it is important theoretically to analyze separately.
The model of type I has been developed by many researchers to explain spatial structure in a city. In a model of this type, non-market interactions, for example, communications between corporations or individuals or spill over of knowledge or information, generate the fundamental power of spatial agglomeration. By development of communication technology the same level interactions occur without agglomeration, some merit of agglomeration does decrease and agglomeration power is weakened.
A model of type II contributes to advance of recent urban economics. It is developed mainly on the monopolistic competition model (type II-1) on the industrial organization theory, for example, Spence [11] and Dixit and Stiglitz [1]. Krugman [8] shows that agglomeration power of a corporation is strengthened by decrease in the transportation costs between two regions. Actually, preparation of road net is regarded as the big factor which promoted over-centralization to a large city.
In this paper, we show that development of communication technology does not prevent over-centralization. The spread of telework or satellite office decreases a commuting cost for households or corporations. Decrease in commuting costs become the increase for income of households and the decrease for costs of corporations. On this account, total consumption increases and some new corporation entry. Finally, the agglomeration power of a corporation is strengthened.
