Why cities should not be subsidized

The paper deals with the question of whether fiscal transfers received by cities can be justified by a higher cost of producing publicly provided goods. In the model, increasing the population density implies both a higher output per capita due to agglomeration economies and a higher cost of the publicly provided good due to congestion. It is shown that introducing fiscal transfers to be paid by the region with the lower population density will generally reduce welfare. This result is obtained since the city is already beyond the level of optimum agglomeration.     

中国城市聚集经济实证分析:以天津市为例

聚集经济在城市经济及区域经济研究中占核心地位,它直接体现城市及区域空间结构的经济效率以及竞争力.本研究利用卡利诺模型来对1987年至2001年期间天津市聚集经济进行实证检验.其分析结果表明:在1990年至1994年间天津市呈现出正的聚集经济效应;在1996年至2001年期间呈现出负的聚集经济效应,就是聚集不经济;最近五年聚集经济呈现出上升趋势,相当靠近于1,2001年的聚集经济系数为0.984.本研究的分析结果表明,以工业为主的天津市城市经济效应并不明显,但是,最近天津市工业的总体效应是较良好的,即将能够创造出一些空间外部经济效应.     

AGGLOMERATION AND SUB‐REGIONAL DISPARITIES UNDER DECENTRALIZATION: EVIDENCE OF SPATIAL CLUSTERING OF LAND VALUES IN THE PHILIPPINES

Like other developing countries, the Philippines aims for balanced spatial development. This paper investigates the pattern of sub‐regional disparities by applying the global Moran I and local Moran I_i test statistics on land values data for 1986–2000. Overall, both provincial and city land values diverge spatially. Local clustering of land values is found only within and around Metro Manila. While the results suggest persistent agglomeration economies during the decentralization period, partly because of bias in the fiscal transfer system, they also indicate that other government policies were effective in promoting land values immediately outside Metro Manila.     

Product differentiation,monopolistic competition and city size

Traditionally, the formation of cities has been explained by such supply-side phenomena as scale economies in production or such demand-side phenomena as public goods. This paper presents an integrated demand and supply approach to the formation of cities in spatial economy. Demand considerations, in the form of consumer agglomeration economies (i.e., product variety), are presented as a major cause of urban agglomeration. On the supply side, scale economies are introduced. Both aspects are examined by using the Dixit-Stiglitz model of monopolistic competition to characterize the equilibrium and optimum city size. We also discuss a subsidy scheme that produces an equilibrium city size corresponding to a first-best optimum. Then we analyze the distribution of population in a system of two cities.     

Spatial Cournot competition and economic welfare: a note

We investigated welfare implications in location-quantity models in a symmetric linear city. We found that when firms are not agglomerated in equilibrium, increasing the distance between firms raises (reduces) producer surplus and social welfare (consumer surplus). Moreover, central agglomeration is always optimal for consumers among symmetric locations, but not necessarily for producers. Central agglomeration can be inefficient even if it is the unique equilibrium outcome. In short, the firms are more likely to agglomerate or locate closer than what welfare maximizers would dictate, whereas they locate farther apart than what consumer surplus maximizers would recommend.     

Second-best cost–benefit analysis in monopolistic competition models of urban agglomeration

This paper examines the agglomeration benefits of a transportation improvement in a city by modeling the microstructure of urban agglomeration based on monopolistic competition of differentiated intermediate products. Properly extended to include variety distortion in addition to price distortion, Harberger’s measure of excess burden yields the agglomeration benefits. The agglomeration benefits are positive if increasing the variety is procompetitive; however, in the anticompetitive case, we cannot exclude the possibility of negative additional benefits. If there are multiple cities, the net agglomeration benefits can be negative when other cities that experience a reduction in population have larger agglomeration economies.     

An indirect test of efficient city sizes

This paper develops a model which demonstrates necessary conditions for efficient distribution of labor across areas given the presence of agglomeration economies and congestion externalities. An indirect empirical test for efficient allocation is formulated based on a comparison of estimated agglomeration economies with the compensating variation in occupation-specific wages needed to attract workers to larger cities. The results of this test suggest that there are specific city size ranges where necessary conditions for efficient allocation of resources are not met, particularly for cities in the 1.5 to 2.5 million population range. Current claims that continued growth of the largest U. S. cities is inefficient are not confirmed by the empirical results.     

Agglomeration economies and university program creation in the knowledge economy

Existing academic literature on the relationship between agglomeration economies and university activities is both under-theorized and relatively sparse in terms of empirical examination. This paper addresses each of these voids by contributing and analyzing a market model of pro-revenue education program creation such as graduate-level executive business education (e.g. EMBA) that reveals some intriguing characteristics. For instance, it shows that demand for these pro-revenue programs is inelastic and therefore uniquely determines their availability. More specifically, we show that through agglomeration economies these types of education programs are more likely to emanate from universities located in metropolitan areas and from less academically prestigious universities. Regression analysis of a cross-section of national public universities lends support to important facets of our formal model by suggesting that agglomeration economies continue to increase the probability of offering EMBA programs through a city size of approximately 2.12 million and that the probability that a given business school will offer an EMBA is negatively related to the academic prestige of the institution to which it is affiliated.     

A note on tax competition in the presence of agglomeration economies

This paper analyzes tax competition in the presence of agglomeration effects. The obtained results are then compared to the results of the traditional model, without agglomeration effects. As is well known, the presence of a fiscal externality affects the provision of the public good in the standard competitive model of tax competition. In the model with agglomeration effects, in addition to this externality, a new effect shows up. This effect reflects heightened government concern about capital flight, which depresses firm productivity by limiting external economies of scale. As a result, capital tax rates end up being lower than in the case where agglomeration effects are not present, worsening the underprovision of the public good. This conclusion holds in both the competitive and strategic versions of the model.     

Agglomeration Economies as Manifested in Technical Efficiency at the Firm Level

This paper makes an attempt to assess the significance of agglomeration economies in the case of two Indian industries, electrical machinery and cotton and cotton textiles. Using firm level data, an efficiency index based on a statistical stochastic frontier model is generated to examine its relationship with external scale variable(s). A positive association between technical efficiency and city size is evident although after a certain threshold level city size works more as diseconomies than economies of scale. Undue emphasis on industrial dispersal may, therefore, lead to suboptimal utilisation of resources.     

A monopolistic competition model of spatial agglomeration: Differentiated product approach

Although most existing models of spatial agglomeration rely on the concept of external economies, this paper demonstrates that pure market processes based on price interactions alone can generate spatial agglomeration of economic activities. To this end, a spatial version of the Chamberlinian monopolistic competition model is developed, in which a continuum of firms supply a continuum of differentiated goods to homogeneous households in a linear city. The monopolistic equilibria are compared with the first-best and second-best solutions.     

Pushing the limit? Fiscal policy in the European Monetary Union

Governments are confronted with the growing realization that they face fiscal limits on the size of debt and deficits relative to GDP. These fiscal limits invalidate Bohn's criterion for fiscal sustainability, which allows explosive debt relative to GDP, eventually violating any fiscal limit. We derive restrictions on a fiscal rule, necessary for the government to eliminate explosive behavior. These restrictions require that the response of the primary surplus to debt be relatively strong, and that the primary surplus be cointegrated with both debt and output. We test these empirical implications for a panel of eleven EMU countries, and find that they are satisfied, implying that fiscal policy does not create explosive behavior.     

Urban agglomeration effects and employment and wage gradients

When employment occurs at both central and non-central points, but firms have a preference to be near the center, the rent gradient will decline, and a wage gradient is necessary to compensate workers for more centrally located employment. Wage gradients and rent gradients are jointly determined. The relationship between wage offer functions and the equilibrium wage gradient is derived, the latter dependent on utility functions and commuting costs. This is illustrated with a two sector model incorporating agglomeration economies in the export sector. Numerical solution reveals how agglomeration economies affect wages, employment, and city size.     

Why Cities? A Response

Why do cities exist? Geographers Allen Scott and Michael Storper recently put the question before the field of urban studies and provided a clear and concise answer in terms of economies of agglomeration and the urban land nexus. I argue that two other basic elements must be added to this duo: the spatial concentration of economic surplus by ruling classes and states and the creation of a built environment or urban landscape. In addition, I take issue with Scott and Storper's neglect of the problem of scale in urban theory and their overly tidy sense of what constitutes a scientific approach to complex phenomena like cities.     

An extension of the monocentric urban spatial equilibrium model to a multicenter setting: The case of the two-center city

Firms in a monocentric city conforming in substance to the “new urban economics” produce an export commodity under agglomeration economies and employ homogeneous labor and capital. Workers reside about the CBD in decreasing densities with distance. A developer establishes a second export production center within the city's residential area. Conditions for economic viability and growth of the subcenter are examined, and its impacts on short-run and long-run city location patterns are discussed. A limiting condition on subcenter employment size is provided.     

Spatial concentration and plant-level productivity in France

This paper analyzes empirically the effect of spatial agglomeration of activities on plant-level productivity, using French firm and plant-level data from 1996 to 2004. We exploit short-run variations of variables by making use of GMM estimation. This allows us to control for endogeneity biases that the estimation of agglomeration economies typically encounters. This means that our paper focuses on a subset of agglomeration economies, the short-run ones. Our results show that French plants benefit from localization economies, but we find very little - if any - evidence of urbanization economies. We also show that those localization benefits are relatively well internalized by firms in their location choice: we find very little difference between the geography that would maximize productivity gains in the short-run and the geography actually observed.     

Keynesian Comparative Economics:

A BSTRACT . The authors of this article review the late E. Lynn Turgeon's contributions to economics, including his studies of the Soviet economy, use of qualitative and demographic analyses, his Keynesian critique of U.S. economic performance, and his critique of international financial markets. Turgeon's comparative approach led to unique insights about the challenges that confronted planned economies, including the differential impact of military spending on the demand-constrained economy of the United States and the supply-constrained economy of the Soviet Union. His study of the Soviet and planned economies also informed his analysis of the U.S. economy and international adjustment mechanisms. Turgeon argued for expansionary fiscal and neutral monetary policies, prudential restrictions on portfolio capital flows, and increased foreign direct investment and foreign assistance to shift the burdens of adjustment from deficit to surplus countries. Throughout his career, Turgeon measured economic policies by their effects on real people, including impacts on employment, the environment, living standards, and distributions of income and wealth.     

Fiscal Explanations for Inflation: Any Evidence from Transition Economies?

Recent arguments, motivated partly by the new fiscal theory of price level, suggest that fiscal deficits undermine price stability in transition economies. This paper addresses these claims by examining vector-autoregressive models of inflation for three transition economies (Bulgaria, Romania and Russia). The results indicate that fiscal deficits have increased inflation in Bulgaria and Romania but not in the case of Russia. In Bulgaria and Romania, money aggregates and exchange rate have also been more influential to inflation than fiscal deficits. The analysis based on this method therefore suggests that while fiscal deficits have some influence on inflation, monetary factors mostly determine inflation in these three countries.     

Agglomeration economies in urban manufacturing industries: A case of Japanese cities

The effects of urban agglomeration economies on productivities in two-digit manufacturing industries is estimated using the cross section data of Japanese cities in 1979. Urbanization and localization economies, which are major forms of urban agglomeration economies, are explicitly separated. The estimates of these economies vary considerably among industries. Light industries receive more productive advantages from urbanization economies than from localization economies, but heavy industries experience these economies more from localization economies than from urbanization economies.     

Urban Agglomeration and Dispersion: A Synthesis of Alonso and Krugman

Urban agglomeration becomes increasingly important because of the globalization of world economies. This paper is a general equilibrium analysis of urban agglomeration economies due to product variety, and agglomeration diseconomies due to intra-city congestion in a two-city system framework. Special attention is paid to the impacts of transportation cost decrease on urban concentration and dispersion. Our main result is that dispersion necessarily takes place when the transportation cost is sufficiently low. We also conduct numerical calculations using specific parameter values, and depict a structural transition from dispersion to agglomeration, and then re-dispersion when the transportation costs decrease monotonically over time. Finally, we observe that dispersion is usually bad as compared to agglomeration, from a welfare point of view.