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City Size and the Henry George Theorem under Monopolistic Competition

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  • Kristian Behrens
  • Yasusada Murata

Abstract

We analyze the equilibrium and the optimal resource allocations in a monocentric city under monopolistic competition. Unlike the constant elasticity of substitution (CES) case, where the equilibrium markups are independent of city size, we present a variable elasticity of substitution (VES) case where the equilibrium markups fall with city size. We then show that, due to excess entry triggered by such pro-competitive effects, the "golden rule" of local public finance, i.e., the Henry George Theorem (HGT), does not hold at the second best. We finally prove, within a more general framework, that the HGT holds at the second best under monopolistic competition if and only if the second-best allocation is first-best efficient, which reduces to the CES case.

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Bibliographic Info

Paper provided by CIRPEE in its series Cahiers de recherche with number 0834.

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Date of creation: 2008
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Handle: RePEc:lvl:lacicr:0834

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Keywords: City size; Henry George Theorem; monopolistic competition; first-best and second-best allocations; variable elasticity;

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References

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  1. Behrens, Kristian & Murata, Yasusada, 2007. "General equilibrium models of monopolistic competition: A new approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 776-787, September.
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  22. Arnott, Richard, 1979. "Optimal city size in a spatial economy," Journal of Urban Economics, Elsevier, vol. 6(1), pages 65-89, January.
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Citations

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Cited by:
  1. Kristian Behrens & Yasusada Murata, 2009. "Trade, Competition, and Efficiency," Cahiers de recherche 0940, CIRPEE.
  2. Amerighi, Oscar & Peralta, Susana, 2010. "The proximity-concentration trade-off with profit shifting," Journal of Urban Economics, Elsevier, vol. 68(1), pages 90-101, July.
  3. André De Palma & Alexandre Guimard, 2014. "Urbanism, an overview," Working Papers hal-00969574, HAL.
  4. Kristian Behrens & Yoshitsugu Kanemoto & Yasusada Murata, 2010. "The Henry George Theorem in A Second-Best World," CIRJE F-Series CIRJE-F-773, CIRJE, Faculty of Economics, University of Tokyo.

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