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Dynamics of city formation

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  • Vernon Henderson

    (Brown University)

  • Anthony Venables

    (Oxford University)

Abstract

This paper examines city formation in a country whose urban population is growing steadily over time, with new cities required to accommodate this growth. In contrast to most of the literature there is immobility of housing and urban infrastructure, and investment in these assets is taken on the basis of forward-looking behavior. In the presence of these fixed assets cities form sequentially, without the population swings in existing cities that arise in current models, but with swings in house rents. Equilibrium city size, absent government, may be larger or smaller than is efficient, depending on how urban externalities vary with population. Efficient formation of cities with internalization of externalities involves local government intervention and borrowing to finance development. The paper explores the institutions required for successful local government intervention. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2008.06.003
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 12 (2009)
Issue (Month): 2 (April)
Pages: 233-254

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Handle: RePEc:red:issued:08-51

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Related research

Keywords: Urbanization; City size; Urban developers; City governance;

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References

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  1. Moretti, Enrico, 2004. "Bidding for Industrial Plants: Does Winning a 'Million Dollar Plant' Increase Welfare?," Santa Cruz Department of Economics, Working Paper Series qt5cz0h23t, Department of Economics, UC Santa Cruz.
  2. Anthony J. Venables, 2003. "Spatial Disparities in Developing Countries: Cities, Regions and International Trade," CEP Discussion Papers dp0593, Centre for Economic Performance, LSE.
  3. Esteban Rossi-Hansberg & Mark L. J. Wright, 2006. "Urban structure and growth," Staff Report 381, Federal Reserve Bank of Minneapolis.
  4. J. Vernon Henderson & Anthony Venables, 2008. "The Dynamics of City Formation," NBER Working Papers 13769, National Bureau of Economic Research, Inc.
  5. Abdel-Rahman, Hesham M. & Anas, Alex, 2003. "Theories of system of cities," Working Papers 2003-08, University of New Orleans, Department of Economics and Finance.
  6. Edward L. Glaeser & Joseph Gyourko, 2001. "Urban Decline and Durable Housing," Harvard Institute of Economic Research Working Papers 1931, Harvard - Institute of Economic Research.
  7. J.V. Henderson & A.J. Venables, 2006. "The Dynamics of City Formation: Finance and Governance," 2006 Meeting Papers 224, Society for Economic Dynamics.
  8. Xavier Gabaix & Yannis M. Ioannides, 2003. "The Evolution of City Size Distributions," Discussion Papers Series, Department of Economics, Tufts University 0310, Department of Economics, Tufts University.
  9. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers 75, Queen's University, Department of Economics.
  10. Helsley, Robert W. & Strange, William C., 1994. "City formation with commitment," Regional Science and Urban Economics, Elsevier, vol. 24(3), pages 373-390, June.
  11. Duffie, Darrell, et al, 1994. "Stationary Markov Equilibria," Econometrica, Econometric Society, vol. 62(4), pages 745-81, July.
  12. Duncan Black & Vernon Henderson, 1999. "A Theory of Urban Growth," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 252-284, April.
  13. Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117 Elsevier.
  14. Henderson, J. Vernon & Wang, Hyoung Gun, 2007. "Urbanization and city growth: The role of institutions," Regional Science and Urban Economics, Elsevier, vol. 37(3), pages 283-313, May.
  15. Krugman, Paul, 1996. "Confronting the Mystery of Urban Hierarchy," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 399-418, December.
  16. James E. Rauch, 1993. "Does History Matter Only When it Matters Little? The Case of City-Indu try Location," NBER Working Papers 4312, National Bureau of Economic Research, Inc.
  17. Duncan Black & Vernon Henderson, 2003. "Urban evolution in the USA," Journal of Economic Geography, Oxford University Press, vol. 3(4), pages 343-372, October.
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