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Second-Best Cost-Benefit Analysis in Monopolistic Competition Models of Urban Agglomeration

  • Yoshitsugu Kanemoto

    (National Graduate Institute for Policy Studies)

Many sources of urban agglomeration involve departures from the first-best world. By modeling the microstructure of agglomeration economies, we derive second-best benefit evaluation formulae for urban transportation improvements. Previous work has investigated the same problem, but without explicitly modeling the sources of agglomeration economies. Accordingly, our analysis examines whether earlier results remain valid when monopolistic competition with differentiated products provides the microfoundation of the agglomeration economies. By explicitly introducing the rural sector and multiple cities, we also show that the agglomeration benefits depend on where the new workers are from.

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Paper provided by National Graduate Institute for Policy Studies in its series GRIPS Discussion Papers with number 11-21.

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Length: 25 pages
Date of creation: Jan 2012
Handle: RePEc:ngi:dpaper:11-21
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  1. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques Thisse, 2012. "Monopolistic competition: Beyond the constant elasticity of substitution," ULB Institutional Repository 2013/224564, ULB -- Universite Libre de Bruxelles.
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  6. 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.
  7. Vives, Xavier, 1985. "On the efficiency of Bertrand and Cournot equilibria with product differentation," Journal of Economic Theory, Elsevier, vol. 36(1), pages 166-175, June.
  8. Yoshitsugu Kanemoto & Koichi Mera, 1984. "General Equilibrium Analysis of the Benefits of Large Transportation Improvements," Working Papers 567, Queen's University, Department of Economics.
  9. Anthony J. Venables, 2007. "Evaluating Urban Transport Improvements: Cost-Benefit Analysis in the Presence of Agglomeration and Income Taxation," Journal of Transport Economics and Policy, University of Bath, vol. 41(2), pages 173-188, May.
  10. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
  11. Roger Vickerman, 2007. "Recent Evolution of Research into the Wider Economic Benefits of Transport Infrastructure Investments," OECD/ITF Joint Transport Research Centre Discussion Papers 2007/9, OECD Publishing.
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  13. Graham, Daniel J., 2007. "Variable returns to agglomeration and the effect of road traffic congestion," Journal of Urban Economics, Elsevier, vol. 62(1), pages 103-120, July.
  14. PENG, Shin-Kun & THISSE, Jacques-François & WANG, Ping, 2004. "Economic integration and agglomeration in a middle product economy," CORE Discussion Papers 2004015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  15. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
  16. White, Michelle J., 1976. "Firm suburbanization and urban subcenters," Journal of Urban Economics, Elsevier, vol. 3(4), pages 323-343, October.
  17. Tabuchi, Takatoshi & Yoshida, Atsushi, 2000. "Separating Urban Agglomeration Economies in Consumption and Production," Journal of Urban Economics, Elsevier, vol. 48(1), pages 70-84, July.
  18. Richard Arnott, 2007. "Congestion Tolling with Agglomeration Externalities," Boston College Working Papers in Economics 660, Boston College Department of Economics.
  19. Jean Cavailhes & Carl Gaigne & Takatoshi Tabuchi & Jacques-Francois Thisse, 2006. "Trade and the structure of cities," CIRJE F-Series CIRJE-F-454, CIRJE, Faculty of Economics, University of Tokyo.
  20. Kristian Behrens & Yoshitsugu Kanemoto & Yasusada Murata, 2010. "The Henry George Theorem in A Second-Best World," CIRJE F-Series CIRJE-F-773, CIRJE, Faculty of Economics, University of Tokyo.
  21. Kanemoto, Yoshitsugu, 2013. "Second-best cost–benefit analysis in monopolistic competition models of urban agglomeration," Journal of Urban Economics, Elsevier, vol. 76(C), pages 83-92.
  22. Takatoshi Tabuchi & Dao-Zhi Zeng, 2000. "Stability of Spatial Equilibrium," CIRJE F-Series CIRJE-F-79, CIRJE, Faculty of Economics, University of Tokyo.
  23. Kanemoto, Yoshitsugu, 1990. "Optimal cities with indivisibility in production and interactions between firms," Journal of Urban Economics, Elsevier, vol. 27(1), pages 46-59, January.
  24. Fujita, Masahisa & Ogawa, Hideaki, 1982. "Multiple equilibria and structural transition of non-monocentric urban configurations," Regional Science and Urban Economics, Elsevier, vol. 12(2), pages 161-196, May.
  25. Feenstra, Robert C., 2003. "A homothetic utility function for monopolistic competition models, without constant price elasticity," Economics Letters, Elsevier, vol. 78(1), pages 79-86, January.
  26. Kanemoto, Yoshitsugu, 2013. "Evaluating benefits of transportation in models of new economic geography," Economics of Transportation, Elsevier, vol. 2(2), pages 53-62.
  27. Wieand, Kenneth F., 1987. "An extension of the monocentric urban spatial equilibrium model to a multicenter setting: The case of the two-center city," Journal of Urban Economics, Elsevier, vol. 21(3), pages 259-271, May.
  28. Yinger, John, 1992. "City and suburb: Urban models with more than one employment center," Journal of Urban Economics, Elsevier, vol. 31(2), pages 181-205, March.
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