IDEAS home Printed from
   My bibliography  Save this paper

Second-Best Cost-Benefit Analysis with a Microfoundation of Urban Agglomeration


  • Yoshitsugu Kanemoto



Modeling a micro-structure of agglomeration economies, this article derives a second-best benefit evaluation formula for urban transportation improvements. Without explicitly modeling the sources of agglomeration economies, Venables (JTEP 2007) investigated the same problem. This article examines how his cost-benefit measure should be modified when monopolistic competition with differentiated products provides a micro-foundation of agglomeration economies. Introducing the rural sector and multiple cities explicitly, we show that the result hinges on where the new workers come from. An improvement in urban transportation in one city increases its population but reduces those in other cities. If the population of the rural area (or, equivalently, the total population of the urban areas) is fixed, then the changes in the excess burden cancel out each other and only the direct benefit remains. If migration between the rural area and a city is possible, then a transportation improvement increases the total urban population and there will be positive additional benefits. If the number of cities changes, we have an additional change in the excess burden but the result depends on whether the city size is too large or not. In the former case, the induced effect on the number of cities has a tendency to reduce the social surplus.

Suggested Citation

  • Yoshitsugu Kanemoto, 2011. "Second-Best Cost-Benefit Analysis with a Microfoundation of Urban Agglomeration," ERSA conference papers ersa11p439, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa11p439

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. 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.
    2. 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.
    3. Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban 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 48, pages 2063-2117 Elsevier.
    4. Behrens, Kristian & Kanemoto, Yoshitsugu & Murata, Yasusada, 2015. "The Henry George Theorem in a second-best world," Journal of Urban Economics, Elsevier, vol. 85(C), pages 34-51.
    5. 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.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Vermeulen, Wouter, 2011. "Agglomeration externalities and urban growth controls," LSE Research Online Documents on Economics 57852, London School of Economics and Political Science, LSE Library.
    2. Wouter Vermeulen, 2011. "Agglomeration Externalities and Urban Growth Controls," CPB Discussion Paper 191, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Wouter Vermeulen, 2017. "Agglomeration externalities and urban growth controls," Journal of Economic Geography, Oxford University Press, vol. 17(1), pages 59-94.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa11p439. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.