City Size and the Henry George Theorem under Monopolistic Competition

Kristian Behrens () and Yasusada Murata

Cahiers de recherche from CIRPEE

Abstract: We analyze the equilibrium and the optimal resource allocations in a monocentric city under monopolistic competition. Unlike the constant elasticity of substitution (CES) case, where the equilibrium markups are independent of city size, we present a variable elasticity of substitution (VES) case where the equilibrium markups fall with city size. We then show that, due to excess entry triggered by such pro-competitive effects, the "golden rule" of local public finance, i.e., the Henry George Theorem (HGT), does not hold at the second best. We finally prove, within a more general framework, that the HGT holds at the second best under monopolistic competition if and only if the second-best allocation is first-best efficient, which reduces to the CES case.

Keywords: City size; Henry George Theorem; monopolistic competition; first-best and second-best allocations; variable elasticity (search for similar items in EconPapers)
JEL-codes: D43 R12 R13 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-geo and nep-ure
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Related works:
Journal Article: City size and the Henry George Theorem under monopolistic competition (2009)
Working Paper: City size and the Henry George theorem under monopolistic competition (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0834

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