ABSTRACT
Implicit until has been the assumption that the quality of the environment is invariant over the landscape as described by the spatial equilibrium condition of R. F. Muth. Clearly, if the quality of the environment varies over the urban area then individuals must have an explicit preference for location. One should visualise the quality of the environment as a surface unfolding over the landscape–"peaks" corresponding to high–quality urban areas and "valleys" corresponding to low–quality urban areas. In other words it specifies the income rise necessary to attain an optimal level of utility precisely equal to that resulting from a unit rise in the quality of the environment in the same area. Furthermore, if environmental variations are strong enough over the city, there may be an area associated with a bid–rent lower than the opportunity cost of land. Changes in the quality of the environment imply aggregate benefits or disbenefits.
