Optimal Formation of Cities: Policy Considerations

Hannu Laurila
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Hannu Laurila: School of Management, University of Tampere

No 758, Working Papers from Tampere University, Faculty of Management and Business, Economics

Abstract: Club theoretic analysis of migration between profoundly asymmetric cities shows that centralizedpolicy intervention is necessary to ensure efficient allocation of people between cities. Quantity rationingand equalizing lump sum transfers are compared as the policy instruments of the central government. Theinstruments turn out to be different in their effects on residential allocation and welfare. This is becauselump sum transfers pool up the welfare creating potentials of the cities thus affecting the optimalitycondition. Therefore, lump sum transfers are superior, and they accelerate rather than stabilize the spatialevolution.

Keywords: agglomeration economies; city size; club theory (search for similar items in EconPapers)
JEL-codes: H77 R51 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2007-08
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http://urn.fi/urn:isbn:978-951-44-70-43-1 First version, 2007 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:0758

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