  Although it has been suggested that the shift from on-site work to telework
will change the city structure, the mechanism of this change is not clear. This
study clarifies how the location of firms changes when the cost of teleworking
decreases and how this affects the urban economy. The two main results obtained
are as follows. (i) The expansion of teleworking causes firms to be located
closer to urban centers or closer to urban fringes. (ii) Teleworking makes
urban production more efficient and cities more compact. This is the first
paper to show that two empirical studies can be represented in a unified
theoretical model and that existing studies obtained by simulation can be
explained analytically.
