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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. The benefit evaluation of a transportation project must then take into account agglomeration benefits along with any direct user benefits. Using a monopolistic competition model of differentiated intermediate products, we show that the additional benefits can be expressed as an extended Harberger formula with variety distortion in addition to price distortion. They are positive if variety is procompetitive, but, in the anticompetitive case, we cannot exclude the possibility of negative additional benefits. By introducing the rural sector and multiple cities explicitly, 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 12-04.

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Length: 23 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:ngi:dpaper:12-04
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  1. Edward L. Glaeser, Jed Kolko, and Albert Saiz, 2001. "Consumer city," Journal of Economic Geography, Oxford University Press, vol. 1(1), pages 27-50, January.
  2. Yoshitsugu Kanemoto, 2012. "Second-Best Cost-Benefit Analysis in Monopolistic Competition Models of Urban Agglomeration," GRIPS Discussion Papers 11-21, National Graduate Institute for Policy Studies.
  3. Diego Puga, 2010. "The Magnitude And Causes Of Agglomeration Economies," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 203-219.
  4. OTTAVIANO, Gianmarco & THISSE, Jacques-François, 1999. "Agglomeration and trade revisited," CORE Discussion Papers 1999041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Shin-Kun Peng & Jacques-François Thisse & Ping Wang, 2005. "Economic Integration and Agglomeration in a Middle Product Economy," IEAS Working Paper : academic research 05-A006, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  6. Behrens, Kristian & Kanemoto, Yoshitsugu & Murata, Yasusada, 2010. "The Henry George Theorem in a second-best world," CEPR Discussion Papers 8120, C.E.P.R. Discussion Papers.
  7. ZHELOBODKO, Evgeny & KOKOVIN, Sergey & PARENTI, Mathieu & THISSE, Jean - François, 2011. "Monopolistic competition in general equilibrium: beyond the CES," CORE Discussion Papers 2011010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Yoshitsugu Kanemoto, 1985. "Optimal Cities with Indivisibility in Production and Interactions Between Firms," Working Papers 597, Queen's University, Department of Economics.
  9. 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.
  10. Daniel J. Graham, 2007. "Agglomeration, Productivity and Transport Investment," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 41(3), pages 317-343, September.
  11. 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.
  12. Vickerman, Roger, 2008. "Transit investment and economic development," Research in Transportation Economics, Elsevier, vol. 23(1), pages 107-115, January.
  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.
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