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Agglomeration and welfare: The core-periphery model in the light of Bentham, Kaldor, and Rawls

  • Charlot, Sylvie
  • Gaigne, Carl
  • Robert-Nicoud, Frederic
  • Thisse, Jacques-Francois

The objective of this paper is to apply different welfare approaches to the canonical model developed by Krugman, with the aim of comparing the only two possible market outcomes, i.e. agglomeration and dispersion. More precisely, we use the Pareto criterion, the compensation criteria put forward by Kaldor, as well as the utilitarian and Rawlsian welfare functions. No clear answer emerges for the following two reasons: (i) except for small range of transport cost values, there is indetermination when compensation schemes are used and (ii) the best outcome heavily depends on societal values regarding inequalities across individuals. In particular, our analysis cautions against the use of utilitarian welfare functions as a foundation for regional policy recommendations.

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

Volume (Year): 90 (2006)
Issue (Month): 1-2 (January)
Pages: 325-347

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:1-2:p:325-347
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Donald R. Davis & David E. Weinstein, 2002. "Bones, Bombs, and Break Points: The Geography of Economic Activity," American Economic Review, American Economic Association, vol. 92(5), pages 1269-1289, December.
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  6. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
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  10. Robert-Nicoud, Frederic & Sbergami, Federica, 2004. "Home-market vs. vote-market effect: Location equilibrium in a probabilistic voting model," European Economic Review, Elsevier, vol. 48(1), pages 155-179, February.
  11. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  12. Wildasin, David E., 1986. "Spatial variation of the marginal utility of income and unequal treatment of equals," Journal of Urban Economics, Elsevier, vol. 19(1), pages 125-129, January.
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  15. I. M. D. Little, 1949. "The Foundations Of Welfare Economics," Oxford Economic Papers, Oxford University Press, vol. 1(2), pages 227-246.
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