This paper, departing from traditional location theory (which treats a firm as a single-unit entity), considers that each firm consists of multiple units that exchange information or services. Specifically, the authors develop a general equilibrium model of the city, in which each firm consists of a front-unit (business office) and back-unit (plant or back-office). Each front-unit interacts with all other front-units for the purpose of business communications, while each back-unit exchanges information or management services only with the front-unit of the same firm. Each firm must select the location of its front-unit and back-unit optimally. The equilibrium spatial configuration of the city is determined as an outcome of interactions among all firms and households through competitive land and labor markets. It is shown that, depending on parameters, a variety of interesting patterns of metropolitan spatial organization emerges.
Abstract