Thünen Model

One of the first and most influential conceptions of relative location was proposed by Johann von Thünen (1780–1850), a German estate owner interested in economic theory and local agricultural conditions. From his experiences as an estate manager, he observed that identical plots of land would be used for different purposes depending on their accessibility to the market. His book The Isolated State, published in 1826, proposed one of the very first models in economic geography. von Thünen's aim was to uncover the laws that govern the interactions of agricultural prices, transport costs, and land uses as landlords sought to maximize their profits.

The concept of economic rent, also called location rent, a relative measure of the advantage of one parcel of land over another, is central to von Thünen's model of agricultural land use. Differential rents may result from variances in productivity of different parcels of land and/or variances in the distance from the market. von Thünen demonstrated that rent is the price of accessibility to the market. In other words, rents decline with the distance from a market center because transport costs rise accordingly.

To explain agricultural land use, von Thünen described an idealized agricultural region about which he made certain assumptions. He envisioned an isolated state with a large city serving as the only market. A uniform plain surrounded the city. There were no extraneous disturbances in this idealized landscape; social classes and government intervention were absent. The cost of transport to the central town increased at a rate proportional to the distance. He concluded that near the town will be grown those products that are heavy or bulky in relation to their value and that are consequently so expensive to transport [Page 2833]that the remoter districts are unable to supply them. With increasing distance from the town, the land will progressively be given over to products that are cheap to transport in relation to their value. Farmers near the central market pay lower transport costs than farmers at the margin of production. Farmers recognize this condition, and they know that it is in their best interest to bid up the amount that they will pay for agricultural land closer to the market. Bidding continues until bid rent equals location rent. At that price, farmers recover production and transport costs, and landowners receive location rents as payments for their land. Competitive bidding for desirable locations cancels income differentials attributable to accessibility. The bid rent, or the trade-off of rent levels with transport costs, declines just far enough from the market to cover the additional transport costs; hence, farmers are indifferent to their distance from the market. Location rent for any crop can be calculated by using the following formula:

Figure 1 The von Thünen model's bid-rent lines and associated land uses. Given that transport costs erode profits with distance from the market, the Thünen model describes a simplified agricultural system in which land uses change according to prices and transport costs.

Source: Adapted from Wikimedia Commons.

• R = location rent per unit of land at distance k,
• e = output per unit of land,
• k = distance to the market,
• p = market price per unit of output,
• a = production cost per unit of product (including labor), and
• f = transport rate per unit of distance per unit of output.

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