The Dynamics of City Formation: Finance and Governance
AbstractThis 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 behaviour. In the presence of these fixed assets cities form sequentially, without the population swings in existing cities that arise in current models. 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 involves local government borrowing to finance development. The institutions governing land markets, leases, local taxation, and local borrowing and debt affect the efficiency of outcomes. The Paper explores the effects of different fiscal constraints, and shows that borrowing constraints lead cities to be larger than is efficient.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4638.
Date of creation: Sep 2004
Date of revision:
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Other versions of this item:
- J.V. Henderson & A.J. Venables, 2006. "The Dynamics of City Formation: Finance and Governance," 2006 Meeting Papers 224, Society for Economic Dynamics.
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
- O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
- R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
- R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-02-13 (All new papers)
- NEP-GEO-2005-02-13 (Economic Geography)
- NEP-URE-2005-02-13 (Urban & Real Estate Economics)
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