City size and the Henry George theorem under monopolistic competition

Kristian Behrens () and Yasusada Murata

No 2007063, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

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 the city size, we present a variable elasticity of substitution (VES) case where the equilibrium markups fall with the 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 in the second best. We finally prove, within our framework, that the HGT holds in the second best if and only if: (i) the second-best allocation is first-best efficient, which turns out to be equivalent to the CES case;or (ii) a marginal change in the city size has no impact on equilibrium product diversity at the second best.

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: 2007-08-01
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://sites.uclouvain.be/core/publications/coredp/coredp2007.html (application/pdf)

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 (2008)
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:cor:louvco:2007063

Access Statistics for this paper

More papers in LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().