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Urban interactions and spatial structure

Robert Helsley and William Strange

Journal of Economic Geography, 2007, vol. 7, issue 2, 119-138

Abstract: This article specifies and solves a model of endogenous spatial interactions where agents choose to visit a particular location to interact with others. Equilibrium fails to achieve first-best levels of visits and population density. A construction subsidy can restore second-best efficiency, but not first-best because it does not operate on the visit margin directly. A transportation subsidy can achieve first best. This result--which contrasts with earlier work--comes from treating interaction as a choice variable, rather than focusing on population density, a correlate. Developers are unable to implement even second-best efficiency because of their limited control over a city's land area. Copyright 2007, Oxford University Press.

Date: 2007
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Handle: RePEc:oup:jecgeo:v:7:y:2007:i:2:p:119-138