Second-Best Cost-Benefit Analysis with a Microfoundation of Urban Agglomeration
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.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Kristian Behrens & Yoshitsugu Kanemoto & Yasusada Murata, 2010. "The Henry George Theorem in A Second-Best World," CIRJE F-Series CIRJE-F-773, CIRJE, Faculty of Economics, University of Tokyo.
- Kristian Behrens & Yoshitsugu Kanemoto & Yasusada Murata, 2014. "The Henry George Theorem in a second-best world," GRIPS Discussion Papers 14-11, National Graduate Institute for Policy Studies.
- 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.
- 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.
- Yoshitsugu Kanemoto, 1985. "Optimal Cities with Indivisibility in Production and Interactions Between Firms," Working Papers 597, Queen's University, Department of Economics.
- 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.
- 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.
- Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc.
- Duranton, Gilles & Puga, Diego, 2003. "Microfoundations of Urban Agglomeration Economies," CEPR Discussion Papers 4062, C.E.P.R. Discussion Papers.
- 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)