Should Cities Diversify? City Risk and Industrial Policy

Matthieu Bouvard, Adolfo de Motta and Sheridan Titman

No 24-1538, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We explore the diversification of an urban economy where the labor specialization choices of its residents determine the city’s exposure to sectoral shocks. The presence of demand-driven externalities introduces the possibility of city-wide coordination failures. Residents, when making their specialization choices, do not account for the costs of these coordination failures, and as a result, the equilibrium level of diversification is ineÿcient. The optimal policies that address these externalities depend on the city’s economic condition, with prosperous urban economies deriving a greater benefit from fostering diversification. Thus, the paper rationalizes the widespread industrial policies that in some cases promote diversifying, while in others, specializing a city’s economy.

Keywords: City diversification; industrial policy, city risk; coordination failures (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.tse-fr.eu/sites/default/files/TSE/docu ... 2024/wp_tse_1538.pdf Full Text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:129348

Access Statistics for this paper

More papers in TSE Working Papers from Toulouse School of Economics (TSE) Contact information at EDIRC.
Bibliographic data for series maintained by ().