What is bid-rent theory?

Bid-rent theory, also known as Von Thunen model, is an economic theory that explains the location of various types of land uses within a city or region based on the principle that land users will bid up the rent for the most desirable locations.

According to bid-rent theory, land users will pay more for locations that offer greater accessibility, visibility, and amenities, such as proximity to markets, transportation hubs, or natural resources. As a result, land uses that require these advantages, such as commercial and retail establishments, will locate in areas with higher land values.

On the other hand, land uses that do not require these advantages, such as manufacturing or industrial uses, will locate in areas with lower land values. This creates a pattern of concentric rings or zones of land use intensity, with the most valuable uses located in the central business district and less valuable uses located on the outskirts of the city or region.

Overall, bid-rent theory helps to explain the spatial distribution of land uses within a city or region and the factors that influence the location decisions of land users. It is a foundational concept in urban and regional economics and planning.