Evolution in Division of Labor, Urbanization, and Land Price Differentials between the Urban and Rural Areas.

A general equilibrium model with consumer-producers, economies of specialization, and transaction costs is developed to explain the land price differential between the urban and rural areas by evolution in division of labor. It shows that as transaction conditions are improved, the equilibrium network of division of labor expands, the land price differential between the urban and rural areas increases, relative per capita consumption of land in the urban and rural areas decreases, and the productivity of all goods and per capita real income increase.