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Market Equilibrium and Social Optimum in a Multi-Regional Economy: The Role of Moving Cost

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  • M. R. Narayana

    (Institute For Social and Economic Change, Bangalore)

Abstract

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.

Suggested Citation

  • M. R. Narayana, 1992. "Market Equilibrium and Social Optimum in a Multi-Regional Economy: The Role of Moving Cost," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 27(1), pages 73-89, July.
  • Handle: RePEc:dse:indecr:v:27:y:1992:i:1:p:73-89
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    More about this item

    JEL classification:

    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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