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City size and the Henry George Theorem under monopolistic competition

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Listed author(s):
  • Behrens, Kristian
  • Murata, Yasusada

Abstract

We analyze the equilibrium and the optimal resource allocations in a monocentric city under monopolistic competition. Unlike the constant elasticity of substitution (CES) case, where the equilibrium markups are independent of city size, we present a variable elasticity of substitution (VES) case where the equilibrium markups fall with the mass of competing firms and with city size. We then show that, due to excess entry triggered by such pro-competitive effects, the 'golden rule' of local public finance, i.e., the Henry George Theorem (HGT), does not hold at the second best. We finally prove, within a more general framework, that the HGT holds at the second best under monopolistic competition if and only if the second-best allocation is first-best efficient, which reduces to the CES case.

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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 65 (2009)
Issue (Month): 2 (March)
Pages: 228-235

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Handle: RePEc:eee:juecon:v:65:y:2009:i:2:p:228-235
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

Keywords: City size Henry George Theorem Monopolistic competition First-best and second-best allocations Variable elasticity;

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Find related papers by JEL classification:
  • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
  • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
  • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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Cited by:

  1. Behrens, Kristian & Kanemoto, Yoshitsugu & Murata, Yasusada, 2015. "The Henry George Theorem in a second-best world," Journal of Urban Economics, Elsevier, vol. 85(C), pages 34-51.
  2. André De Palma & Alexandre Guimard, 2014. "Urbanism, an overview," Working Papers hal-00969574, HAL.
  3. Amerighi, Oscar & Peralta, Susana, 2010. "The proximity-concentration trade-off with profit shifting," Journal of Urban Economics, Elsevier, vol. 68(1), pages 90-101, July.
  4. Behrens, Kristian & Murata, Yasusada, 2012. "Trade, competition, and efficiency," Journal of International Economics, Elsevier, vol. 87(1), pages 1-17.
  5. Anas, Alex, 2012. "The optimal pricing, finance and supply of urban transportation in general equilibrium: A theoretical exposition," Economics of Transportation, Elsevier, vol. 1(1), pages 64-76.

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