How Should Place‐Based Policies Be Designed to Efficiently Promote Retail Agglomeration?

Place‐based policies can change the spatial distribution of retail stores and consumers. We develop a general equilibrium model in which consumers make a single shopping trip and freely choose where to reside. By using this model, we evaluate the welfare impacts of place‐based policies for downtown retail agglomeration to clarify what place‐based policies are efficient. Results show that the efficiency of place‐based policies depends on the recipients of government subsidies, consumers or stores, even if the policies promote retail agglomeration in downtown areas. Using a utility function with the constant elasticity of substitution (CES) subutility for varieties, we examine the welfare impacts of these place‐based policies. We demonstrate that subsidizing consumers to relocate near downtown areas is inevitably harmful from the viewpoint of welfare under the CES, whereas subsidizing retail stores is efficient.