This paper presents an analog to Cournot duopoly in a model of the local public sector, with one city and a suburb. Reaction functions are derived for the mayor of the city and of the suburb, and properties of the Nash equilibria are analyzed. The translation of the Cournot duopoly model is not simply a matter of renaming variables, because of the role of land rents. As residents move, they impose a pecuniary externality on others through higher land prices as well as by changing incentives facing each mayor. Comparative statics results are derived for changes in agricultural land prices and transportation costs and for their effects on city population and rents captured by the city mayor.
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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number
wp251.
Find related papers by JEL classification: H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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