Thunens Isolated State Model

1
Thunens Isolated State Model

• Key Idea A product with a high expected return
  and therefore high rent-paying ability will be
  able to outbid a product with a lower profit
  level and, therefore, a relatively modest
  rent-bid ceiling (p. 304)

2
Assumptions

•  
• Homogeneous space, containing a flat land
  surface, identical climate, and soil conditions
  throughout the field
• A uniform transportation surface on which
  movement costs increase equally with distance in
  every direction
• A single urban market at the center whose needs
  are entirely supplied by the surrounding
  agricultural hinterland, which itself has no
  trade with the outside world

3
Further assumption

• all the land in the heretofore undifferentiated
  landscape is placed on the auction block at the
  same time
• all these actors prefer to purchase the right to
  use farm land near the market

4
Rents

• Economic Rent the income that a farmer can earn
  above the economic margin of certain farming
  activity
• Location Rent economic rent of which magnitude
  depends on the location of the parcel relative to
  other parcels and the market center
• Contract Rent a payment by a tenant to a
  landlord which is decided on a contract between
  them

5
Graphical Representation of Rent
Gross Income
Location Rent
Economic Margin
Transfer Earnings Expenses the lowest
acceptable profit
6
Location Rent in Thunens Model

• LR Ep Ea Efk
• LR location rent per acre
• E yield (bushel) of agricultural product per
  unit of land
• P market price per bushel of agricultural
  product
• a cost of producing each bushel of product,
  including the land users opportunity cost
• k distance (miles) product is shipped from farm
  to central market
• f freight rate per bushel per mile

7
Ex) Calculation of Locational Rent
8
LR_truckLR_dairy
LR_dairyLR_wheat
9
Sinclairs Inverted Von Thunen Model 1

• Urban sprawl defers intensive agricultural land
  use near urban centers ? investment rises as
  distance increases from city center

10
Sinclairs Inverted Von Thunen Model 2
11
Distortions in Thunens Model

• Transportation Biases
• Outlying Concentrations of Farming California
  and Florida (Weather) Historical Inertia
  (Idahos Potato) Local Strategies (Californias
  Sunkist Association)
• Secondary Markets outside of Isolated State