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Optimal City Structure

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  • Costas Arkolakis

    (Yale University)

Abstract

In this paper, we develop a quantitative general equilibrium model of a city that incorporates the many economic interactions that occur over the space of the city, including commuting, trade, and productive interactions. We show that despite the many spatial linkages, in the absence of externalities the competitive equilibrium is efficient; conversely, in the presence of spillovers, there exists opportunities for a city planner to increase the welfare of the city inhabitants by restricting the use of land (“zoning†). We provide sufficient conditions for the optimal zoning policy that depend solely on observables and several key model parameters. Finally, we illustrate the flexibility of the model by applying it to study the observed zoning policy of the city of Chicago. Preliminary results suggest that the welfare of Chicago residents would increase if more area was allocated to residential usage in the central business district and more area was allocated to businesses in the outlying neighborhoods.

Suggested Citation

  • Costas Arkolakis, 2016. "Optimal City Structure," 2016 Meeting Papers 301, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:301
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    Cited by:

    1. Ferdinando Monte & Stephen J. Redding & Esteban Rossi-Hansberg, 2018. "Commuting, Migration, and Local Employment Elasticities," American Economic Review, American Economic Association, vol. 108(12), pages 3855-3890, December.
    2. Farrokhi, Farid & Jinkins, David, 2019. "Wage inequality and the location of cities," Journal of Urban Economics, Elsevier, vol. 111(C), pages 76-92.
    3. Nathaniel Baum-Snow & Daniel Hartley & Kwan Ok Lee, 2019. "The Long-Run Effects of Neighborhood Change on Incumbent Families," Working Paper Series WP-2019-2, Federal Reserve Bank of Chicago.
    4. Benjamin Faber & Cecile Gaubert, 2019. "Tourism and Economic Development: Evidence from Mexico's Coastline," American Economic Review, American Economic Association, vol. 109(6), pages 2245-2293, June.
    5. Jan (J.) Rouwendal & Or Levkovich & Ismir Mulalic, 2017. "Discrete Choice Models for Commuting Interactions," Tinbergen Institute Discussion Papers 17-067/VIII, Tinbergen Institute.
    6. Cuñat, Alejandro & Zymek, Robert, 2022. "The (structural) gravity of epidemics," European Economic Review, Elsevier, vol. 144(C).
    7. Gaubert, Cécile & Faber, Benjamin, 2018. "Tourism and Economic Development: Evidence from Mexico’s Coastline," CEPR Discussion Papers 12644, C.E.P.R. Discussion Papers.

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