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Optimum City Size: The External Diseconomy Question


  • J.V. Henderson

    (Queen's University)


This paper discusses whether market-achieved city size is greater or less than optimum city size. The divergence between optimum and achieved city size is due to external diseconomies such as pollution. Imposing an optimal tax on pollution may not, as is commonly thought, cause even an initial reduction in output of the polluting good. Moreover, the paper shows, even if output initially falls with optimal taxation, the corresponding reduction in pollution and shift toward consumption of non-polluting goods will make city inhabitants better off. The increased welfare of city inhabitants will result in immigration to the city.

Suggested Citation

  • J.V. Henderson, 1972. "Optimum City Size: The External Diseconomy Question," Working Papers 91, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:91

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    References listed on IDEAS

    1. Russell Davidson & James G. MacKinnon, 1996. "The Size and Power of Bootstrap Tests," Working Papers 932, Queen's University, Department of Economics.
    2. Taylor, Larry W., 1987. "The size bias of White's information matrix test," Economics Letters, Elsevier, vol. 24(1), pages 63-67.
    3. Davidson, Russell & MacKinnon, James G, 1984. "Model Specification Tests Based on Artificial Linear Regressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 485-502, June.
    4. Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
    5. Chesher, Andrew, 1983. "The information matrix test : Simplified calculation via a score test interpretation," Economics Letters, Elsevier, vol. 13(1), pages 45-48.
    6. Davidson, Russell & MacKinnon, James G, 1992. "A New Form of the Information Matrix Test," Econometrica, Econometric Society, vol. 60(1), pages 145-157, January.
    7. Orme, Christopher, 1988. "The Calculation of the Information Matrix Test for Binary Data Models," The Manchester School of Economic & Social Studies, University of Manchester, vol. 56(4), pages 370-376, December.
    8. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
    9. Chesher, Andrew & Spady, Richard, 1991. "Asymptotic Expansions of the Information Matrix Test Statistic," Econometrica, Econometric Society, vol. 59(3), pages 787-815, May.
    10. Lancaster, Tony, 1984. "The Covariance Matrix of the Information Matrix Test," Econometrica, Econometric Society, vol. 52(4), pages 1051-1053, July.
    11. West, Kenneth D & Wilcox, David W, 1996. "A Comparison of Alternative Instrumental Variables Estimators of a Dynamic Linear Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 281-293, July.
    12. Hendry, David F., 1984. "Monte carlo experimentation in econometrics," Handbook of Econometrics,in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 16, pages 937-976 Elsevier.
    13. Fischer, N. I. & Mammen, E. & Marron, J. S., 1994. "Testing for multimodality," Computational Statistics & Data Analysis, Elsevier, vol. 18(5), pages 499-512, December.
    14. Alastair Hall, 1987. "The Information Matrix Test for the Linear Model," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 257-263.
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    Cited by:

    1. Hiroki Watanabe, 2015. "A Spatial Production Economy Explains Gross Metropolitan Product," ERSA conference papers ersa15p30, European Regional Science Association.
    2. Castells-Quintana, David, 2017. "Malthus living in a slum: Urban concentration, infrastructure and economic growth," Journal of Urban Economics, Elsevier, vol. 98(C), pages 158-173.
    3. Juan Cordoba, 2013. "Supply Side Structural Change," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 3(1), pages 8-38, June.
    4. Lee, Sanghoon, 2010. "Ability sorting and consumer city," Journal of Urban Economics, Elsevier, vol. 68(1), pages 20-33, July.
    5. repec:kbb:dpaper:2012-19 is not listed on IDEAS
    6. Sinai, Todd & Waldfogel, Joel, 2004. "Geography and the Internet: is the Internet a substitute or a complement for cities?," Journal of Urban Economics, Elsevier, vol. 56(1), pages 1-24, July.
    7. Ayer, Harry W. & Weidman, Joe, 1976. "The Rural Town As A Producing Unit: An Empirical Analysis And Implications For Rural Development Policy," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 8(02), December.

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