Second-Best Cost-Benefit Analysis with a Microfoundation of Urban Agglomeration
AbstractModeling a micro-structure of agglomeration economies, this article derives a second-best benefit evaluation formula for urban transportation improvements. Without explicitly modeling the sources of agglomeration economies, Venables (JTEP 2007) investigated the same problem. This article examines how his cost-benefit measure should be modified when monopolistic competition with differentiated products provides a micro-foundation of agglomeration economies. Introducing the rural sector and multiple cities explicitly, we show that the result hinges on where the new workers come from. An improvement in urban transportation in one city increases its population but reduces those in other cities. If the population of the rural area (or, equivalently, the total population of the urban areas) is fixed, then the changes in the excess burden cancel out each other and only the direct benefit remains. If migration between the rural area and a city is possible, then a transportation improvement increases the total urban population and there will be positive additional benefits. If the number of cities changes, we have an additional change in the excess burden but the result depends on whether the city size is too large or not. In the former case, the induced effect on the number of cities has a tendency to reduce the social surplus.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by European Regional Science Association in its series ERSA conference papers with number ersa11p439.
Date of creation: Sep 2011
Date of revision:
Contact details of provider:
Postal: Welthandelsplatz 1, 1020 Vienna, Austria
Web page: http://www.ersa.org
Other versions of this item:
- Yoshitsugu Kanemoto, 2011. "Second-Best Cost?Benefit Analysis with a Microfoundation of Urban Agglomeration," GRIPS Discussion Papers, National Graduate Institute for Policy Studies 11-03, National Graduate Institute for Policy Studies.
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.:
- Giles Duranton & Diego Puga, 2003.
"Micro-Foundations of Urban Agglomeration Economies,"
NBER Working Papers
9931, National Bureau of Economic Research, Inc.
- Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics, Elsevier, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117 Elsevier.
- Duranton, Gilles & Puga, Diego, 2003. "Microfoundations of Urban Agglomeration Economies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4062, C.E.P.R. Discussion Papers.
- Roger Vickerman, 2007. "Recent Evolution of Research into the Wider Economic Benefits of Transport Infrastructure Investments," OECD/ITF Joint Transport Research Centre Discussion Papers, OECD Publishing 2007/9, OECD Publishing.
- Tabuchi, Takatoshi & Yoshida, Atsushi, 2000. "Separating Urban Agglomeration Economies in Consumption and Production," Journal of Urban Economics, Elsevier, vol. 48(1), pages 70-84, July.
- Kanemoto, Yoshitsugu, 1990.
"Optimal cities with indivisibility in production and interactions between firms,"
Journal of Urban Economics,
Elsevier, vol. 27(1), pages 46-59, January.
- Yoshitsugu Kanemoto, 1985. "Optimal Cities with Indivisibility in Production and Interactions Between Firms," Working Papers, Queen's University, Department of Economics 597, Queen's University, Department of Economics.
- Wouter Vermeulen, 2011. "Agglomeration Externalities and Urban Growth Controls," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0093, Spatial Economics Research Centre, LSE.
- Wouter Vermeulen, 2011. "Agglomeration Externalities and Urban Growth Controls," CPB Discussion Paper, CPB Netherlands Bureau for Economic Policy Analysis 191, CPB Netherlands Bureau for Economic Policy Analysis.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier).
If references are entirely missing, you can add them using this form.