Monday, May 19, 2008

If You Build It, They Will Ride

Paul Krugman claims Americans face a paradox as we adapt to higher oil prices and away from our suburbia lifestyle.
Public transit, in particular, faces a chicken-and-egg problem: it’s hard to justify transit systems unless there’s sufficient population density, yet it’s hard to persuade people to live in denser neighborhoods unless they come with the advantage of transit access.
This is not really a big problem if you remember your marginalism. Extend a single rail line through a residential area. If oil prices are as high as everyone says they are, people will move to that area. Apartment buildings will replace townhouses (and if you're smart, you bought some of that land around the rail before the construction was announced).

Firms solve this problem all the time. Wal-Mart constructs its stores in the middle of no where. It doesn't fret about the low population density (it prefers it, actually) because it knows people will come to it. Same goes with any large scale project that people will want. Assuming, of course, they want what you're building.

1 comment:

Charles N. Steele said...

Nicely put.

I suspect the reason Krugman can't figure this out is the tendency of "market failure" proponents to be hypnotized by their blackboard models, thus failing to ask how a real-worl entrepreneur might solve the problem.