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Dynamics of city formation

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Author Info

  • 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. Esteban Rossi-Hansberg & Mark L. J. Wright, 2007. "Urban Structure and Growth," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 597-624.
  2. Helsley, Robert W. & Strange, William C., 1994. "City formation with commitment," Regional Science and Urban Economics, Elsevier, vol. 24(3), pages 373-390, June.
  3. J.V. Henderson & A.J. Venables, 2006. "The Dynamics of City Formation: Finance and Governance," 2006 Meeting Papers 224, Society for Economic Dynamics.
  4. Edward L. Glaeser & Joseph Gyourko, 2001. "Urban Decline and Durable Housing," NBER Working Papers 8598, National Bureau of Economic Research, Inc.
  5. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-56, September.
  6. Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc.
  7. Krugman, Paul, 1996. "Confronting the Mystery of Urban Hierarchy," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 399-418, December.
  8. Gabaix, Xavier & Ioannides, Yannis M., 2004. "The evolution of city size distributions," 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 53, pages 2341-2378 Elsevier.
  9. 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.
  10. Duffie, Darrell, et al, 1994. "Stationary Markov Equilibria," Econometrica, Econometric Society, vol. 62(4), pages 745-81, July.
  11. Duncan Black & Vernon Henderson, 2003. "Urban evolution in the USA," Journal of Economic Geography, Oxford University Press, vol. 3(4), pages 343-372, October.
  12. 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.
  13. 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.
  14. Anthony J. Venables, 2005. "Spatial disparities in developing countries: cities, regions, and international trade," Journal of Economic Geography, Oxford University Press, vol. 5(1), pages 3-21, January.
  15. Abdel-Rahman, Hesham M. & Anas, Alex, 2004. "Theories of systems of cities," 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 52, pages 2293-2339 Elsevier.
  16. 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.
  17. J. Vernon Henderson & Anthony Venables, 2008. "The Dynamics of City Formation," NBER Working Papers 13769, National Bureau of Economic Research, Inc.
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