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Agglomeration and Welfare: The Core-Periphery Model in the Light of Bentham, Kaldor and Rawls

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  • Charlot, Sylvie
  • Gaigné, Carl
  • Robert-Nicoud, Frédéric
  • Thisse, Jacques-François

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 potential Pareto improvement criteria, as well as the utilitarian and Rawlsian welfare functions. No clear answer emerges for the following two reasons: (i) in general, there is indetermination when compensation schemes are used and (ii) the best outcome heavily depends on societal values regarding inequalities across individuals. However, simulations undertaken for plausible values of the main parameters suggest that there might be excessive agglomeration.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4715.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4715

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Keywords: agglomeration; compensation mechanism; economic geography; welfare;

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  1. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  2. OTTAVIANO, Gianmarco & THISSE, Jacques-François, . "Integration, agglomeration and the political economics of factor mobility," CORE Discussion Papers RP -1541, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. OTTAVIANO, Gianmarco & THISSE, Jacques-François, 1999. "Agglomeration and trade revisited," CORE Discussion Papers 1999041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Thierry Mayer & Keith Head, 2003. "The Empirics of Agglomeration and Trade," Working Papers 2003-15, CEPII research center.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  6. Donald R. Davis & David E. Weinstein, 2002. "Bones, bombs and break points: The geography of economic activity," Discussion Papers 0102-02, Columbia University, Department of Economics.
  7. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
  8. Victor Ginsburgh & Yorgo Papageorgiou & Jacques-François Thisse, 1985. "On existence and stability of spatial equilibria and steady-states," ULB Institutional Repository 2013/99282, ULB -- Universite Libre de Bruxelles.
  9. Wildasin, David E., 1986. "Spatial variation of the marginal utility of income and unequal treatment of equals," Journal of Urban Economics, Elsevier, vol. 19(1), pages 125-129, January.
  10. Robert-Nicoud, Frederic & Sbergami, Federica, 2004. "Home-market vs. vote-market effect: Location equilibrium in a probabilistic voting model," European Economic Review, Elsevier, vol. 48(1), pages 155-179, February.
  11. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
  12. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
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