Cost-Benefit Analysis in Monopolistic Competition Models of Urban Agglomeration

Yoshitsugu Kanemoto

No 12-04, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: Many sources of urban agglomeration involve departures from the first-best world. The benefit evaluation of a transportation project must then take into account agglomeration benefits along with any direct user benefits. Using a monopolistic competition model of differentiated intermediate products, we show that the additional benefits can be expressed as an extended Harberger formula with variety distortion in addition to price distortion. They are positive if variety is procompetitive, but, in the anticompetitive case, we cannot exclude the possibility of negative additional benefits. By introducing the rural sector and multiple cities explicitly, we also show that the agglomeration benefits depend on where the new workers are from.

Pages: 23 pages
Date: 2012-06
New Economics Papers: this item is included in nep-geo and nep-ure
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Citations: View citations in EconPapers (2)

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