Winners, Losers and Optimal Re-location of a Mining Town: An Approach Using Alonso Bid-Rent Functions

Abstract

Kiruna, a mining town in the northern part of Sweden, is currently facing a serious planning problem. Rich quantities of iron ore underneath the town centre have led to a decision to re-locate the city and its residents. However, this does not affect all residents as some live just outside the risk zone. Thus, a re-distribution of wealth will occur when the distance to the town centre changes. This paper addresses two issues; first, is the re-location efficient in terms of this wealth re-distribution, that is, are the gains in property values larger than the losses from moving the city to the new location? and second, does the new location of Kiruna yield an efficient outcome, or could planners have chosen another location that would result in larger gains and smaller losses? Using a measure derived from Alonso bid-rent functions which is estimated with the spatial Durbin model, both these questions are assessed and the results indicate that moving the city centre does lead to gains that outweigh the losses, however, the proposed location of Kiruna does not yield an optimal result from this perspective.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. It should be noted that there exists alternatives to using the “Kaldor-Hicks” criterion. For example, the augmented “Kaldor-Hicks” criterion suggested by Scitovszky (1941), however, since the original distribution of wealth in Kiruna is of particular interest the “Kaldor-Hicks” is sufficient. 

2. Kiruna has somewhere around 20,000 inhabitants, making it small by Swedish measures.

3. This problem is potentially only marginal since the actual move is scheduled far in the future.

4. With the current exchange rate (2012) this equates to roughly $11.