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

  • CHARLOT, Sylvie
  • GAIGNÉ, Carl
  • ROBERT-NICOUD, Frédéric
  • THISSE, Jacques

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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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003039.

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Date of creation: 00 Feb 2003
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Handle: RePEc:cor:louvco:2003039
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  1. Ginsburgh, Victor & Papageorgiou, Yorgo & Thisse, Jacques-Francois, 1985. "On existence and stability of spatial equilibria and steady-states," Regional Science and Urban Economics, Elsevier, vol. 15(2), pages 149-158, June.
  2. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  4. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  5. Donald R. Davis & David E. Weinstein, 2001. "Bones, Bombs and Break Points: The Geography of Economic Activity," NBER Working Papers 8517, National Bureau of Economic Research, Inc.
  6. Thierry Mayer & Keith Head, 2003. "The Empirics of Agglomeration and Trade," Working Papers 2003-15, CEPII research center.
  7. Ottaviano, Gianmarco I. P. & Thisse, Jacques-Francois, 2002. "Integration, agglomeration and the political economics of factor mobility," Journal of Public Economics, Elsevier, vol. 83(3), pages 429-456, March.
  8. J. Peter Neary, 2000. "Of Hype and Hyperbolas - Introducing the new Economic Geography," Working Papers 200019, School Of Economics, University College Dublin.
  9. 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.
  10. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  11. 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.
  12. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
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