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Dynamics of city formation

Author

Listed:
  • Vernon Henderson

    (Brown University)

  • Anthony Venables

    (Oxford University)

Abstract

This paper examines city formation in a country whose urban population is growing steadily over time, with new cities required to accommodate this growth. In contrast to most of the literature there is immobility of housing and urban infrastructure, and investment in these assets is taken on the basis of forward-looking behavior. In the presence of these fixed assets cities form sequentially, without the population swings in existing cities that arise in current models, but with swings in house rents. Equilibrium city size, absent government, may be larger or smaller than is efficient, depending on how urban externalities vary with population. Efficient formation of cities with internalization of externalities involves local government intervention and borrowing to finance development. The paper explores the institutions required for successful local government intervention. (Copyright: Elsevier)

Suggested Citation

  • Vernon Henderson & Anthony Venables, 2009. "Dynamics of city formation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 233-254, April.
  • Handle: RePEc:red:issued:08-51
    DOI: 10.1016/j.red.2008.06.003
    as

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    File URL: http://dx.doi.org/10.1016/j.red.2008.06.003
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    References listed on IDEAS

    as
    1. Duffie, Darrell, et al, 1994. "Stationary Markov Equilibria," Econometrica, Econometric Society, vol. 62(4), pages 745-781, July.
    2. Esteban Rossi-Hansberg & Mark L. J. Wright, 2007. "Urban Structure and Growth," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 597-624.
    3. Anthony J. Venables, 2005. "Spatial disparities in developing countries: cities, regions, and international trade," Journal of Economic Geography, Oxford University Press, vol. 5(1), pages 3-21, January.
    4. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-656, September.
    5. Edward L. Glaeser & Joseph Gyourko, 2005. "Urban Decline and Durable Housing," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 345-375, April.
    6. Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117 Elsevier.
    7. James E. Rauch, 1993. "Does History Matter Only When It Matters Little? The Case of City-Industry Location," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 843-867.
    8. Abdel-Rahman, Hesham M. & Anas, Alex, 2004. "Theories of systems of cities," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 52, pages 2293-2339 Elsevier.
    9. Duncan Black & Vernon Henderson, 2003. "Urban evolution in the USA," Journal of Economic Geography, Oxford University Press, vol. 3(4), pages 343-372, October.
    10. Henderson, J Vernon & Venables, Anthony J, 2004. "The Dynamics of City Formation: Finance and Governance," CEPR Discussion Papers 4638, C.E.P.R. Discussion Papers.
    11. J. Vernon Henderson & Anthony Venables, 2008. "The Dynamics of City Formation," NBER Working Papers 13769, National Bureau of Economic Research, Inc.
    12. Duncan Black & Vernon Henderson, 1999. "A Theory of Urban Growth," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 252-284, April.
    13. Michael Greenstone & Enrico Moretti, 2003. "Bidding for Industrial Plants: Does Winning a 'Million Dollar Plant' Increase Welfare?," NBER Working Papers 9844, National Bureau of Economic Research, Inc.
    14. Krugman, Paul, 1996. "Confronting the Mystery of Urban Hierarchy," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 399-418, December.
    15. Gabaix, Xavier & Ioannides, Yannis M., 2004. "The evolution of city size distributions," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 53, pages 2341-2378 Elsevier.
    16. Henderson, J. Vernon & Wang, Hyoung Gun, 2007. "Urbanization and city growth: The role of institutions," Regional Science and Urban Economics, Elsevier, vol. 37(3), pages 283-313, May.
    17. Helsley, Robert W. & Strange, William C., 1994. "City formation with commitment," Regional Science and Urban Economics, Elsevier, vol. 24(3), pages 373-390, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Urbanization; City size; Urban developers; City governance;

    JEL classification:

    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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