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A Simple Model of Functional Specialization of Cities

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  • Nagamachi, Kohei

Abstract

Resorting to the method proposed by Matsuyama (2013), this paper develops a static equi- librium model of a system of cities in which ex ante identical locations specialize in stages of production different in the degree of dependence on routine and nonroutine local services sec- tors, the latter of which is tied to an agglomeration force due to monopolistic competition a ́ la Dixit and Stiglitz (1977). The model is simple in that the system is summarized by a second-order differential equation, which has a unique non-degenerate city size distribution with the comove- ment of income, population, factor prices, and urban diversity as observed for the U.S. cities. Two examples of use of the model are then illustrated: analyses of welfare gain from functional specialization and optimal income redistribution, the latter of which provides an important impli- cation of an increasing importance of interactive activities in a modern developed economy for income redistribution. Although extending the model makes the model analytically intractable, it is still characterized by a differential equation easily solved with a numerical method and thus useful for further analyses.

Suggested Citation

  • Nagamachi, Kohei, 2015. "A Simple Model of Functional Specialization of Cities," MPRA Paper 61497, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:61497
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    More about this item

    Keywords

    functional specialization; system of cities; optimal income redistribution policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • 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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