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Cities, Scale Economies, Local Goods and Local Governments

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  • Oded Hochman

    (Department of Economics and The Monaster Economic Research Center, Ben Gurion University, Beer-Sheva 84105, Israel)

Abstract

This study utilises a precise diagrammatic exposition to analyse issues involving the existence and stability of cities, land rents, and private and public local finance. In spite of the limitations of the exposition (such as having only two dimensions) the model is very general, primarily due to the use of cost curves in the analysis. The main new results of this study are: (1) A generalisation of the Henry George law. In its extended form, this law expresses the sufficiency of land rents for the financing of efficient local government investments in local public goods (pure or not), Piguvian subsidies and taxes, and in the internalisation of external economies of scale (except for the case of natural monopoly cities). For this study, a further extension has been made to apply to an economy with many different population groups, industries, cities, and production factors. (2) That when the basic industry of a city has scale economies internal to the individual firm, the optimal local government policy is the subsidisation of a single firm in the industry and deterrence from entry of all other firms of the same industry. In this case and, unlike that of the natural monopoly city, there may exist many such cities. (3) The identification and characterisation of internal and external scale economies in real life, and the type of city evolving from each and actual actions and procedures used by local governments which can be (and often are) used to increase efficiency. (4) The study of a natural monopoly city and the actions to be taken by both federal and local governments that are needed to achieve efficiency. (5) The existence of a criterion for the (Pareto) desirability of marginal local government investments. The criterion is based on changes in net land values. (6) The possible existence of local optimum solutions to the problem of an efficient city, which indicate the possible efficiency of major changes in the use of land in an already existing city. When the investment in such a major project is broken into stages, the initial steps in the series of investments may appear to be inefficient according to the above criterion (5), although the investment as a whole is altogether desirable.

Suggested Citation

  • Oded Hochman, 1990. "Cities, Scale Economies, Local Goods and Local Governments," Urban Studies, Urban Studies Journal Limited, vol. 27(1), pages 45-65, February.
    • Handle: RePEc:sae:urbstu:v:27:y:1990:i:1:p:45-65
    DOI: 10.1080/00420989020080031
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    References listed on IDEAS

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    1. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-656, September.
    2. Hochman, Oded, 1982. "Clubs in an urban setting," Journal of Urban Economics, Elsevier, vol. 12(1), pages 85-101, July.
    3. Buchanan, James M. & Goetz, Charles J., 1972. "Efficiency limits of fiscal mobility: An assessment of the tiebout model," Journal of Public Economics, Elsevier, vol. 1(1), pages 25-43, April.
    4. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    5. Joseph E. Stiglitz, 1977. "The Theory of Local Public Goods," International Economic Association Series, in: Martin S. Feldstein & Robert P. Inman (ed.), The Economics of Public Services, chapter 12, pages 274-333, Palgrave Macmillan.
    6. Hochman, Oded, 1981. "Land rents, optimal taxation and local fiscal independence in an economy with local public goods," Journal of Public Economics, Elsevier, vol. 15(1), pages 59-85, February.
    7. Tolley, George S., 1974. "The welfare economics of city bigness," Journal of Urban Economics, Elsevier, vol. 1(3), pages 324-345, July.
    8. Hochman, Oded, 1982. "Congestable local public goods in an urban setting," Journal of Urban Economics, Elsevier, vol. 11(3), pages 290-310, May.
    9. Richard J. Arnott & Joseph E. Stiglitz, 1979. "Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 471-500.
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    Cited by:

    1. Hochman, Oded & Pines, David, 1990. "Federal Income Taxes and Their Effects on Inter and Intra City Resource Allocation," Foerder Institute for Economic Research Working Papers 275492, Tel-Aviv University > Foerder Institute for Economic Research.
    2. Jaime Sobrino, 2013. "Urban demographic growth: the case of megacities," Chapters, in: Peter Karl Kresl & Jaime Sobrino (ed.), Handbook of Research Methods and Applications in Urban Economies, chapter 14, pages 343-371, Edward Elgar Publishing.

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