This model was first proposed by Johann Heinrich von Thunen in 1826 in his book, The Isolated State. He was a farmer in northern Germany and a nineteenth century economist.
The Von Thunen model depicts how commercial farmers figure out which crops and animals to cultivate based upon the market location. A commercial farmer cultivates land for the purpose of making a profit. A critically variable in this model that these commercial farmers take note of is the cost of land versus the cost of transporting products to markets because their goal is to make a high profit. Transportation cost depends on the distance from the market and the different kind of products. Locational rent is a term used by Von Thunen to explain his theory which is the equivalent to land value. It corresponds to the maximum amount a farmer could pay for using the land, without making losses.
The equation is L = Y(P − C) − YDF (L= locational rent, Y= Yield, P= Market price of the crop, C= Production cost of the crop, D= Distance from the market, F= Transport cost).
The model consists of four rings that surround the city or central market. The central market can be compared to the central business districts in the city models. The rings starting from the one closest to the city are:
1. Horticulture and Dairy because the products are perishable and need to be close to the city so they will not become spoiled.
2. Foresty such as the production of timber and firewood for practical uses such as fuel and building material. They also have to be close to the center because of their weight and transportation issues.
3. Extensive fields, such as grains for bread, because they last longer than those in the first ring so they can be farther away from the central market. They are also lighter making it easier for transportation.
4. Ranching or grazing is in the outermost ring because they require the most space and farmers can walk/herd animals to market if needed.
Beyond the last ring is land that is too great of a distance to make a profit from the city.
Although this model can be accurate today in some area, Von Thunen assumed a lot of factors and did not consider site or human factors making his model weak in many ways and attracts a lot of criticism. Some of the things he assume include:
- The city is located centrally within an "Isolated State."
- The Isolated State is surrounded by wilderness.
- The land is completely flat and has no rivers or mountains. A river might modify the shape of the rings because transportation costs change when products are shipped by water routes rather than over roads.
- Soil quality and climate are consistent.
- Farmers in the Isolated State transport their own goods to market via oxcart, across land, directly to the central city.
- There are no roads.
- Farmers behave rationally to maximize profits
- Government policies and changes in demand or price of the commodity
Von Thunen also did not consider modern technology that had yet to be invented in his time. For example there are refrigerated cars for the transportation of dairy products which make them last longer and travel longer distance. Also there is the transportation of animals by rail which is faster than having them being grazed into the city.
His ideas do tend to apply in LDCs where some of the advantages of modernization apply less so.
All in all, the Von Thunen model is a good example of the balance between land cost and transportation costs. The closer you get to the city, the higher the price of land increases. These commercial farmers have to balance the cost of transportation, land, and profit to produce the most cost-effective product for their market. In reality however, things don't work out exactly how they’re suppose to in this model which is true in every model.
His ideas do tend to apply in LDCs where some of the advantages of modernization apply less so.
All in all, the Von Thunen model is a good example of the balance between land cost and transportation costs. The closer you get to the city, the higher the price of land increases. These commercial farmers have to balance the cost of transportation, land, and profit to produce the most cost-effective product for their market. In reality however, things don't work out exactly how they’re suppose to in this model which is true in every model.
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