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Urban accounting and welfare

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  • Klaus Desmet

    () (Universidad Carlos III)

  • Esteban Rossi-Hansberg

    () (Princeton University)

Abstract

This paper proposes a simple theory of a system of cities that decomposes the determinants of the city size distribution into three main components: efficiency, amenities, and frictions. Higher efficiency and better amenities lead to larger cities, but also to greater frictions through congestion and other negative effects of agglomeration. Using data on MSAs in the United States, we parametrize the model and empirically estimate efficiency, amenities and frictions. Counterfactual exercises show that all three characteristics are important in that eliminating any of them leads to large population reallocations, though the welfare effects from these reallocations are small. Overall, we find that the gains from worker mobility across cities are modest. When allowing for externalities, we find an important city selection effect: eliminating differences in any of the city characteristics causes many cities to exit. We apply the same methodology to Chinese cities and fi nd welfare effects that are many times larger than in the U.S.

Suggested Citation

  • Klaus Desmet & Esteban Rossi-Hansberg, 2010. "Urban accounting and welfare," Working Papers 2010-24, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  • Handle: RePEc:imd:wpaper:wp2010-24 Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the PROCIUDAD-CM Programme
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    Cited by:

    1. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, Elsevier.
    2. OSHIRO Jun & SATO Yasuhiro, 2016. "Industrial Structure in Urban Accounting," Discussion papers 16105, Research Institute of Economy, Trade and Industry (RIETI).
    3. Larson, William & Yezer, Anthony, 2015. "The energy implications of city size and density," Journal of Urban Economics, Elsevier, vol. 90(C), pages 35-49.
    4. Behrens, Kristian & Robert-Nicoud, Frédéric, 2015. "Agglomeration Theory with Heterogeneous Agents," Handbook of Regional and Urban Economics, Elsevier.
    5. repec:spr:qualqt:v:51:y:2017:i:4:d:10.1007_s11135-016-0366-6 is not listed on IDEAS
    6. repec:anr:reveco:v:9:y:2017:p:21-58 is not listed on IDEAS
    7. Behrens, Kristian & Mion, Giordano & Murata, Yasusada & Suedekum, Jens, 2017. "Spatial frictions," Journal of Urban Economics, Elsevier, vol. 97(C), pages 40-70.
    8. Owen Zidar & Juan Carlos Serrato & Eduardo Morales & Pablo Fajgelbaum, 2015. "State Taxes and Spatial Misallocation," 2015 Meeting Papers 877, Society for Economic Dynamics.
    9. De Groot, Henri L.F. & Ossokina, Ioulia V. & Teulings, Coen N, 2014. "Welfare Benefits of Agglomeration and Worker Heterogeneity," CEPR Discussion Papers 10216, C.E.P.R. Discussion Papers.
    10. Gaigné, Carl & Zenou, Yves, 2015. "Agglomeration, city size and crime," European Economic Review, Elsevier, vol. 80(C), pages 62-82.
    11. Redding, Stephen J. & Turner, Matthew A., 2015. "Transportation Costs and the Spatial Organization of Economic Activity," Handbook of Regional and Urban Economics, Elsevier.
    12. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    13. Bosker,Maarten & Deichmann,Uwe & Roberts,Mark, 2015. "Hukou and highways : the impact of China?s spatial development policies on urbanization and regional inequality," Policy Research Working Paper Series 7350, The World Bank.
    14. Pablo D. Fajgelbaum & Edouard Schaal, 2017. "Optimal Transport Networks in Spatial Equilibrium," NBER Working Papers 23200, National Bureau of Economic Research, Inc.
    15. Takashi Akamatsu & Tomoya Mori & Yuki Takayama, 2015. "Agglomerations in a multi-region economy: Poly-centric versus mono-centric patterns," KIER Working Papers 929, Kyoto University, Institute of Economic Research.
    16. Arthur Grimes & Eyal Apatov & Larissa Lutchman & Anna Robinson, 2014. "Infrastructure’s Long-Lived Impact on Urban Development: Theory and Empirics," Working Papers 14_11, Motu Economic and Public Policy Research.
    17. Chang-Tai Hsieh & Enrico Moretti, 2015. "Housing Constraints and Spatial Misallocation," NBER Working Papers 21154, National Bureau of Economic Research, Inc.
    18. Desmet, Klaus & Henderson, J. Vernon, 2015. "The Geography of Development Within Countries," Handbook of Regional and Urban Economics, Elsevier.
    19. Jeffrey Zax, 2016. "Provincial valuations of human capital in urban China, inter-regional inequality and the implicit value of a Guangdong hukou," ERSA conference papers ersa16p693, European Regional Science Association.
    20. Proost, Stef & Thisse, Jacques-François, 2015. "Skilled Cities, Regional Disparities, and Efficient Transport: The state of the art and a research agenda," CEPR Discussion Papers 10790, C.E.P.R. Discussion Papers.
    21. Yuming Fu & Yang Hao, 2015. "An Urban Accounting for Geographic Concentration of Skills and Welfare Inequality," ERSA conference papers ersa15p734, European Regional Science Association.
    22. Samuel Marden, 2016. "The agricultural roots of industrial development: ‘forward linkages’ in reform era China," Working Paper Series 09116, Department of Economics, University of Sussex.
    23. Samuel Marden, 2016. "The agricultural roots of industrial development: ‘forward linkages’ in reform era China," Working Paper Series 9116, Department of Economics, University of Sussex.
    24. Hsieh, Chang-Tai & Moretti, Enrico, 2015. "Why Do Cities Matter? Local Growth and Aggregate Growth," CEPR Discussion Papers 10604, C.E.P.R. Discussion Papers.

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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • 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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