Optimal location of economic activity and population density: The role of the social welfare function

Raouf Boucekkine (), Giorgio Fabbri, Salvatore Federico () and Fausto Gozzi
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Salvatore Federico: Universita degli Studi di Siena, Dipartimento di Economia Politica e Statistica, Siena, Italy

No 2003, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: In this paper, we consider a spatiotemporal growth model where a social planner chooses the optimal location of economic activity across space by maximization of a spatiotemporal utilitarian social welfare function. Space and time are continuous, and capital law of motion is a parabolic partial differential diffusion equation. The production function is AK. We generalize previous work by considering a continuum of social welfare functions ranging from Benthamite to Millian functions. Using a dynamic programming method in infinite dimension, we can identify a closed-form solution to the induced HJB equation in infinite dimension and recover the optimal control for the original spatiotemporal optimal control problem. Optimal stationary spatial distributions are also obtained analytically. We prove that the Benthamite case is the unique case for which the optimal stationary detrended consumption spatial distribution is uniform. Interestingly enough, we also find that as the social welfare function gets closer to the Millian case, the optimal spatiotemporal dynamics amplify the typical neoclassical dilution population size effect, even in the long-run.

Keywords: spatiotemporal growth models; Benthamite vs Millian social welfare functions; imperfect altruism; diffusion; dynamic programming in infinite dimension (search for similar items in EconPapers)
JEL-codes: C61 O4 R1 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2020-02
New Economics Papers: this item is included in nep-geo and nep-gro
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Working Paper: Optimal location of economic activity and population density: The role of the social welfare function (2020)
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