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Abstract

The objective of this paper is to apply different welfare approaches to the canonical model developed by Krugman, with the aim of comparing the only two possible market outcomes, i.e. agglomeration and dispersion. More precisely, we use the Pareto criterion, the compensation criteria put forward by Kaldor, as well as the utilitarian and Rawlsian welfare functions. No clear answer emerges for the following two reasons: (i) except for small range of transport cost values, there is indetermination when compensation schemes are used and (ii) the best outcome heavily depends on societal values regarding inequalities across individuals. In particular, our analysis cautions against the use of utilitarian welfare functions as a foundation for regional policy recommendations.

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Bibliographic Info

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

Volume (Year): 90 (2006)
Issue (Month): 1-2 (January)
Pages: 325-347

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:1-2:p:325-347

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Web page: http://www.elsevier.com/locate/inca/505578

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Find related papers by JEL classification:

• F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
• R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

References

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