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bid-rent theory

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W. Alonso (1964) notes that when a purchaser acquires land, he acquires two goods (land and location) in one transaction, and a single payment is made for the combination. Thus it is possible to trade off a quantity of land against location. The residential bid price curve is ‘the set of prices for land the individual could pay at various distances while deriving a constant level of satisfaction’. As individuals consider residential locations at increasing distances from the city centre, they assess the price of land that would allow them to buy enough land (and other goods) to provide as much utility (satisfaction) as a given price, and amount of land, at the city centre. The bid price function for the urban firm describes the prices which the firm is willing to pay at different distances from the city centre in order to achieve a certain level of profits. Egan and Nield (2000) Urb. Studs 37 develop a model of the Alonso type which casts light upon the intra-urban location decisions of hotels.

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