The Effect of the Development of Telework on Urban Economy

Abstract

The purpose of this paper is to investigate the effect of the development of telework. Due to the development of telecommunication technology, such as internet, facsimile, portable phone, etc., the necessity to commute to offices at CBD will decrease. Then people can live in the distant area. They have to commute to CBD for some times per unit period, but they might not trip there to buy commodities sold there. This is because we assume that the goods sold at CBD are relatively luxury goods and people can buy necessities at their residential area. The popularization of telework causes not only the expansion of the residential area, but the change in the size of the market area of the stores at CBD, and the level of their profits, also the level of the profit of the transport providers. In order to commute to the offices at CBD, or to trip to the stores to buy commodities, the residents have to buy the services of the transport providers. The demand for the service is determined proportionally to that for the commodities sold at CBD, and the number of commuting to the offices. The demand for the goods at CBD is determined by the c. i. f. price. Given this demand function and the unit price of transportation, the CBD's stores determine their price so as to maximize their profit. Similarly, the transportation providers determine the unit price of transportation, given the commodity price so as to maximize their profit. The Nash game is played by those two economic units and the equilibrium prices are determined. The results which we have derived are as follows: When a certain condition is satisfied, as telework diffuses, the expansion of the residential area exceeds that of the market area, and the location will appear, where the residents commute to CBD but not trip to buy goods there. When that condition is not satisfied, the residential area always coincides with the market area. The condition is on the expenditure ratio for the land rent at the residential border to the total income. If this ratio is small, the former case will be realized, otherwise, the latter case will be realized. As telework diffuses, the price of the commodity decreases, while the transportation rate is fixed. The profits of the commodity seller as well as that of the transport provider increase. © 1996, JAPAN SECTION OF THE REGIONAL SCIENCE ASSOCIATION INTERNATIONAL. All rights reserved.