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The Dynamics of City Formation

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Author Info
J. Vernon Henderson
Anthony Venables

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13769.

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Date of creation: Feb 2008
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Handle: RePEc:nbr:nberwo:13769

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Find related papers by JEL classification:
O1 - Economic Development, Technological Change, and Growth - - Economic Development
O18 - Economic Development, Technological Change, and Growth - - Economic Development - - - Regional, Urban, and Rural Analyses
R0 - Urban, Rural, and Regional Economics - - General
R11 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Analysis of Growth, Development, and Changes

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
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  2. Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. 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. [Downloadable!] (restricted)
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  5. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-56, September. [Downloadable!] (restricted)
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  6. 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. [Downloadable!] (restricted)
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  7. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, vol. 94(5), pages 1429-1451, December. [Downloadable!]
  8. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August. [Downloadable!] (restricted)
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  1. Vernon Henderson & Anthony Venables, 2009. "Dynamics of city formation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 233-254, April. [Downloadable!] (restricted)
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