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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-François

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 potential Pareto improvement criteria, as well as the utilitarian and Rawlsian welfare functions. No clear answer emerges for the following two reasons: (i) in general, there is indetermination when compensation schemes are used and (ii) the best outcome heavily depends on societal values regarding inequalities across individuals. However, simulations undertaken for plausible values of the main parameters suggest that there might be excessive agglomeration.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number 1857.

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Handle: RePEc:cor:louvrp:1857
Note: In : Journal of Public Economics, 90, 325-347, 2006
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  1. 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.
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  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.
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