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Endogenous City Formation with Production Externalities: Existence of Equilibrium

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  • COURTNEY LAFOUNTAIN

Abstract

I show that equilibria exist in closed city‐system models with production externalities if firms' production possibilities vary continuously with the source of the externality, are constant returns to scale in own inputs, include inaction, and satisfy free disposal; if firms have to employ their own inputs to produce output; if there is a finite number of firm types; and if some standard conditions on preferences and endowments are satisfied. This is the first model to include production externalities in the fully general equilibrium framework required for endogenous city formation. Thus, this result provides formal support for the conjecture that production externalities lead to urban agglomeration.

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  • Courtney Lafountain, 2007. "Endogenous City Formation with Production Externalities: Existence of Equilibrium," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(6), pages 959-978, December.
    • Handle: RePEc:bla:jpbect:v:9:y:2007:i:6:p:959-978
    DOI: 10.1111/j.1467-9779.2007.00339.x
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    References listed on IDEAS

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    1. Bernard Cornet & Jean-Philippe Medecin, 2000. "Existence of General Equilibrium for Spatial Economies," Econometric Society World Congress 2000 Contributed Papers 1107, Econometric Society.
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    Cited by:

    1. Konishi, Hideo, 2008. "Tiebout's tale in spatial economies: Entrepreneurship, self-selection, and efficiency," Regional Science and Urban Economics, Elsevier, vol. 38(5), pages 461-477, September.
    2. Courtney LaFountain, 2008. "Core equivalence for residential land use models," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(4), pages 459-481, December.

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