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Optimal City Structure

Listed author(s):
  • Costas Arkolakis

    (Yale University)

In this paper, we develop a quantitative general equilibrium model of a city that incorporates the many economic interactions that occur over the space of the city, including commuting, trade, and productive interactions. We show that despite the many spatial linkages, in the absence of externalities the competitive equilibrium is efficient; conversely, in the presence of spillovers, there exists opportunities for a city planner to increase the welfare of the city inhabitants by restricting the use of land (“zoning†). We provide sufficient conditions for the optimal zoning policy that depend solely on observables and several key model parameters. Finally, we illustrate the flexibility of the model by applying it to study the observed zoning policy of the city of Chicago. Preliminary results suggest that the welfare of Chicago residents would increase if more area was allocated to residential usage in the central business district and more area was allocated to businesses in the outlying neighborhoods.

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Paper provided by Society for Economic Dynamics in its series 2016 Meeting Papers with number 301.

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Date of creation: 2016
Handle: RePEc:red:sed016:301
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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