Market Equilibrium and Social Optimum in a Multi-Regional Economy: The Role of Moving Cost
A spatial model with local public good is developed for analysing market equilibrium and social optimum under costly migration. The utility cost differentials are shown to exist between regions in equilibrium, and an appropriate federal policy intervention in the form of inter-regional transfers is sought. Comparative static results show that a common federal policy change would have different welfare implications for non-movers, movers and stayers in equilibrium. These results provide economic justification for disaggregate approach to the estimation of the impact of federal transfers on inter-regional population allocation. They also support alternative federal policy intervention, such as, efficiency-cum-equity, or pure income redistributive, policy and imply that the formulation of efficient allocation problem in the Rawlsian and Benthamite framework is invalid. An alternative social optimum formulation yields an efficiency condition which holds for all groups of labourers in equilibrium.
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Volume (Year): 27 (1992)
Issue (Month): 1 (July)
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