JOURNAL OF URBAN ECONOMICS 1, 332-394 (1974) The Effect of Nuisances Associated with Urban Traffic on Suburbanization and Land Values YITZHAK ORON Department of Economics, Tel-Aviv University, Tel-Aviv, Israel DAVID PINES Department of Economics, Tel-Aviv, University, Tel-Aviv, Israel and Department qf Economics, Princeton University, Princeton, New Jersey 08540 AND EYTAN SHESHINSKI Department qf Economics, the Hebrew University of .lerusalem, Jeursalem, kael Received August 1, 1973 1. 1NTRODUCTION The rapid suburbanization which characterizes most of the metropolitan areas in the world is explained in the literature by many interrelated factors [2, Chapter IX; 31. Among these factors are the increase of population and income, the technological improvement in transportation systems, the in- crease in car ownership, municipal fiscal arrangements, and the growing nuisances in the center city [l, Chapter 6; 2, Chapter IX; 7; 8, pp. 17-211. This paper is mainly concerned with the impact of one aspect of urban nui- sances: those inflicted by the urban motor vehicle traffic on the quality of the residential neighborhood environment (pollution, noise and congestion). We analyze the impact of these nuisances by comparing competitive equilibrium and optimum allocations, employing a standard urban-area model into which the nuisances of motor vehicle traffic have been introduced, The comparison shows that the existing degree of suburbanization is to some extent a symptom of the misallocation of resources which results from external diseconomics associated with vehicle traffic. A similar problem has already been studied with regard to congestion [6, lo] and pollution emitted from a fixed source located in the center of the city [9]. The comparison in this paper is composed of two parts. In the first (Section 2), a general model, in that the utility and environment quality functions are 1We are indebted to Robert E. Kohn from Southern Illinois University for very helpful comments and to the referee for suggesting an improvement in the exposition. 382 Copyright 0 1974 by Academic Press, Inc. All rights of reproduction in any form reserved.