The price of decentralisation

Eva Benedicte Danielsen Norman ()
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Eva Benedicte Danielsen Norman: Samfunns- og Nærlingslivsforskning, Postal: SNF, Breiviksveien 40, N-5045 Bergen, Norway

No 16/2010, Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics

Abstract: This paper develops a model for analysing problems related to centralisation and decentralisation. The model is of the new economic geography type, in which there are agglomeration gains in cities but not in rural areas. These gains are counteracted by residential preferences. We show that, even though people have preferences for rural living, an unregulated market economy gives too little centralisation. This result holds even when city governments actively pursue policies to attract economic activities in order to make their city bigger. When allowing for cities of unequal size, a likely outcome is that big cities and rural areas will be overpopulated whereas smaller cities will be too few and too small.

Keywords: Number of cities; size of cities; external economies; local public inputs; regional competition; agglomeration; welfare. (search for similar items in EconPapers)
JEL-codes: H32 H41 R12 R13 R50 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2010-08-17
New Economics Papers: this item is included in nep-geo and nep-ure
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