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Urban accounting and welfare

Author(s): Desmet, Klaus; Rossi-Hansberg, Esteban A.

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Abstract: We use a simple theory of a system of cities to decompose the determinants of the city size distribution into three main components: efficiency, amenities, and frictions. Higher efficiency and better amenities lead to larger cities but also to greater frictions through congestion and other negative effects of agglomeration. Using data on MSAs in the United States, we estimate these city characteristics. Eliminating variation in any of them leads to large population reallocations, but modest welfare effects. We apply the same methodology to Chinese cities and find welfare effects that are many times larger than those in the US.
Publication Date: 1-Oct-2013
Citation: Desmet, K, Rossi-Hansberg, E. (2013). Urban accounting and welfare. American Economic Review, 103 (6), 2296 - 2327. doi:10.1257/aer.103.6.2296
DOI: doi:10.1257/aer.103.6.2296
ISSN: 0002-8282
Pages: 2296 - 2327
Type of Material: Journal Article
Journal/Proceeding Title: American Economic Review
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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