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City and Suburban Competition

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  • Andrew Austin

Abstract

This paper presents an analog to Cournot duopoly in a model of the local public sector, with one city and a suburb. Reaction functions are derived for the mayor of the city and of the suburb, and properties of the Nash equilibria are analyzed. The translation of the Cournot duopoly model is not simply a matter of renaming variables, because of the role of land rents. As residents move, they impose a pecuniary externality on others through higher land prices as well as by changing incentives facing each mayor. Comparative statics results are derived for changes in agricultural land prices and transportation costs and for their effects on city population and rents captured by the city mayor.

Suggested Citation

  • Andrew Austin, 2005. "City and Suburban Competition," CERGE-EI Working Papers wp251, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp251
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp251.pdf
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    References listed on IDEAS

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    1. Fujita,Masahisa, 1991. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521396455, January.
    2. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December.
    3. Konishi, Hideo, 1996. "Voting with Ballots and Feet: Existence of Equilibrium in a Local Public Good Economy," Journal of Economic Theory, Elsevier, vol. 68(2), pages 480-509, February.
    4. Wildasin, David E., 2003. "Fiscal competition in space and time," Journal of Public Economics, Elsevier, vol. 87(11), pages 2571-2588, October.
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    Keywords

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    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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