Vickrey published “The City as a Firm” in the proceedings of a conference held by the International Economic Association in 1977. The significance of this work is its early development of concepts of New Economic Geography. Vickrey identifies the importance of transportation costs and economies of scale as model inputs. The absence of transportation costs represents a futuristic notion of instantaneous movement of goods and persons. Vickrey defines economies of scale in this context as positive neighbourhood effects. This is a measure of the efficiency of proximity. If each activity could be carried out efficiently within small shops, then production could be uniformly spread throughout a region without loss of efficiency. Evidence has found neither to be the case and this is an important point in the context of autonomous vehicles (AV). They are often touted as significantly reducing transportation costs, but this argument fails on two counts. Based on the arguments of Vickrey, this argument fails to recognize the structural importance of scale economies. Such effects are wholly unaffected by the introduction of AV and economic efficiency will outweigh any desire to relocate activities to more dispersed locations. Vickrey discusses the importance of natural features in the location of our largest cities, while also recognizing that their size would be far smaller in the absence of economies of scale.
A related publication, in the context of the effect of AV adoption on city formation, is the book “Peak Car: the Future of Travel” by Professor David Metz at UCL. He provides a strong argument for hard limits on the speed of travel within an urbanized region. Metz argues that average commuting time has an equilibrium about 30 minutes, going back to the dawn of human civilization. While not a new argument, it is an important one and has been largely overlooked in the AV literature. These vehicles have the potential to introduce marginal increases in travel speed and therefore travel distance, but this 30 minute threshold will likely remain. Transportation costs will remain a factor in the formation and development of urban regions.
Vickrey assumes a perfect market in developing a model of the city as a firm but recognizes this is not an ideal assumption. Dixit and Stiglitz published their monopolistic competition model in the same year, which led to the NEG work of Krugman in the following decades (for which he scored himself a Nobel).