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City size and the Henry George theorem under monopolistic competition

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  • 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 the city size, we present a variable elasticity of substitution (VES) case where the equilibrium markups fall with the 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 in the second best. We finally prove, within our framework, that the HGT holds in the second best if and only if: (i) the second-best allocation is first-best efficient, which turns out to be equivalent to the CES case;or (ii) a marginal change in the city size has no impact on equilibrium product diversity at the second best.

Suggested Citation

  • BEHRENS, Kristian & MURATA, Yasusada, 2007. "City size and the Henry George theorem under monopolistic competition," LIDAM Discussion Papers CORE 2007063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2007063
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    Cited by:

    1. Behrens, Kristian & Murata, Yasusada, 2012. "Trade, competition, and efficiency," Journal of International Economics, Elsevier, vol. 87(1), pages 1-17.
    2. 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.
    3. 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.
    4. Boitier, Vincent, 2024. "Private ownership in monopolistic competition models," Research in Economics, Elsevier, vol. 78(4).
    5. Wei-Bin Zhang, 2020. "Monopsony and Discrimination in Labor Market in the Solow-Stiglitz Two-Group Neoclassical Growth Model," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 6(1), pages 1-19, June.
    6. Vincent Boitier & Emmanuel Auvray, 2021. "Schelling paradox in a system of cities," Post-Print hal-04204673, HAL.
    7. José M. Gaspar, 2018. "A prospective review on New Economic Geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(2), pages 237-272, September.
    8. André de Palma & Alexandre Guimard, 2014. "Urbanism, an overview," Working Papers hal-00969574, HAL.
    9. Stefan Dodds & Mati Dubrovinsky, 2015. "Retail Amenities And Urban Sprawl," Journal of Regional Science, Wiley Blackwell, vol. 55(2), pages 280-297, March.
    10. 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.
    11. Boitier, Vincent & Auvray, Emmanuel, 2021. "Schelling paradox in a system of cities," Mathematical Social Sciences, Elsevier, vol. 113(C), pages 68-88.
    12. Behrens, Kristian & Murata, Yasusada, 2009. "City size and the Henry George Theorem under monopolistic competition," Journal of Urban Economics, Elsevier, vol. 65(2), pages 228-235, March.
    13. Wei-Bin Zhang, 2022. "Stackelberg-Nash Equilibrium and Perfect Competition in the Solow-Uzawa Growth Model," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 96, pages 315-343, January-J.

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    Keywords

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    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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