CBD hypothesis and economies of agglomeration

Economies of agglomeration as a rationale for the formation of central business district of a city is examined. In a simultaneous location problem of firms and workers on a line segment, a locational interaction effect among firms is introduced. As an optimal solution to the cost minimization problem, a locational pattern is obtained in which the outermost zone is occupied by workers, the middle zone by firms, and the innermost zone by both workers and firms.