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The price of decentralisation

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Abstract

This paper develops a model for analysing problems related to centralisation and decentralisation. The model is of the new economic geography type, in which there are agglomeration gains in cities but not in rural areas. These gains are counteracted by residential preferences. We show that, even though people have preferences for rural living, an unregulated market economy gives too little centralisation. This result holds even when city governments actively pursue policies to attract economic activities in order to make their city bigger. When allowing for cities of unequal size, a likely outcome is that big cities and rural areas will be overpopulated whereas smaller cities will be too few and too small.

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  • Norman, Eva Benedicte Danielsen, 2010. "The price of decentralisation," Discussion Paper Series in Economics 16/2010, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2010_016
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    More about this item

    Keywords

    Number of cities; size of cities; external economies; local public inputs; regional competition; agglomeration; welfare.;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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