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Integration, agglomeration and welfare

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  • Pflüger, Michael
  • Südekum, Jens

Abstract

This paper studies the social desirability of agglomeration, and the efficiency arguments for policy intervention in a simple, analytically tractable new economic geography model. The location pattern emerging as market equilibrium is 'bubble-shaped', i.e. it features dispersion both at high and low trade costs and stable equilibria with partial and full agglomeration for intermediate levels of trade costs. We show that the market equilibrium is characterized by over-agglomeration for high trade costs and under-agglomeration for low trade costs, and we work out analytically that a net pecuniary externality is the underlying cause of this market failure. One particularly noteworthy result is that the net pecuniary externality is positive at high levels of trade freeness. However, there is no market under-agglomeration unless this positive net pecuniary externality interacts with an additional congestion force originating in the (per se efficient) competitive housing market.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 63 (2008)
Issue (Month): 2 (March)
Pages: 544-566

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Handle: RePEc:eee:juecon:v:63:y:2008:i:2:p:544-566

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Web page: http://www.elsevier.com/locate/inca/622905

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Keywords: Economic geography Optimal agglomeration Pecuniary externalities Welfare Regional policy;

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  1. Charlot, Sylvie & Gaigne, Carl & Robert-Nicoud, Frederic & Thisse, Jacques-Francois, 2006. "Agglomeration and welfare: The core-periphery model in the light of Bentham, Kaldor, and Rawls," Journal of Public Economics, Elsevier, Elsevier, vol. 90(1-2), pages 325-347, January.
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Citations

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Cited by:
  1. Matthias Wrede, 2009. "Heterogeneous Skills and Homogeneous Land: Segmentation and Agglomeration," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 200922, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Calin Arcalean & Gerhard Glomm & Ioana Schiopu, 2007. "Growth Effects of Spatial Redistribution Policies," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2007-002, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  3. Rainald Borck & Hyun‐Ju Koh & Michael Pflüger, 2012. "Inefficient Lock‐In And Subsidy Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1179-1204, November.
  4. Broll, Udo & Roldán-Ponce, Antonio & Wahl, Jack E., 2012. "Regional investment under uncertain costs of location," Dresden Discussion Paper Series in Economics 01/12, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  5. Broll, Udo & Roldán-Ponce, Antonio & Wahl, Jack E., 2007. "Barriers to Diversification and Regional Allocation of Capital," Dresden Discussion Paper Series in Economics 14/07, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  6. Fabien CANDAU, 2009. "Is Agglomeration Desirable ?," Working Papers 3, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Oct 2009.
  7. Jun Oshiro, 2011. "Tariff Policy and Transport Costs under Reciprocal Dumping," Discussion Papers in Economics and Business 11-17, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  8. Hirte, Georg & Stephan, Andreas, 2014. "Regionale Beschäftigungswirkungen von öffentlichen Investitionen in Straßen- und Schieneninfrastruktur," Discussion Papers 2/2014, Dresden University of Technology, Faculty of Transportation and Traffic Sciences "Friedrich List", Institute for Transport and Economics.
  9. Broll, Udo & Roldán-Ponce, Antonio & Wahl, Jack E., 2010. "Spatial allocation of capital: The role of risk preferences," Dresden Discussion Paper Series in Economics 03/10, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  10. Theresa Grafeneder-Weissteiner & Ingrid Kubin & Klaus Prettner & Alexia Prskawetz & Stefan Wrzaczek, 2012. "Coping with Inefficiencies in a New Economic Geography Model," Working Papers, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna 1204, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
  11. Georg Hirte & Christian Lessmann, 2014. "Trade, Integration, and Interregional Inequality," CESifo Working Paper Series 4799, CESifo Group Munich.
  12. Kurata, Hiroshi & Nomura, Ryoichi, 2011. "A Chamberlinian Agglomeration Model with External Economies of Scale," Discussion paper series. A, Graduate School of Economics and Business Administration, Hokkaido University 242, Graduate School of Economics and Business Administration, Hokkaido University.
  13. G. Rayp & B. Vanbergen, 2009. "Are social welfare states facing a race to the bottom? A theoretical perspective," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 09/572, Ghent University, Faculty of Economics and Business Administration.
  14. Schaeffer, Y. & Charlot, S., 2012. "Inequality aversion, income redistribution and economic geography," Working Papers, Grenoble Applied Economics Laboratory (GAEL) 201204, Grenoble Applied Economics Laboratory (GAEL).

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