Optimal City Size with Endogenous Fertility

Rainald Borck, Tadashi Morita and Yasuhiro Sato
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Tadashi Morita: Faculty of Economics, Department of International Economics, Kindai University
Yasuhiro Sato: Faculty of Economics, The University of Tokyo

No CIRJE-F-1269, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: We build a dynamic quantitative spatial model with mobile households and en- dogenous fertility to analyze the efficiency of equilibrium fertility choices and city size distribution. City size affects the economy through three channels: a larger city population increases productivity, affects amenity levels (positively or negatively), and increases the cost of child care. We find that the competitive equilibrium is in- efficient due to the intergenerational externality. We calibrate our model to German county data and find that excessively large cities have excessively low fertility rates, which yields a 14% welfare loss.

Pages: 37 pages
Date: 2026-04
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Working Paper: Optimal City Size with Endogenous Fertility (2026)
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