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The dynamics of city formation
J Vernon Henderson1, Anthony J Venables2
1Brown University.
Review of Economic Dynamics
|August 5, 2014
Summary
New cities form sequentially to accommodate urban population growth. Fixed housing and infrastructure lead to rent fluctuations, necessitating local government intervention for efficient city development.
Area of Science:
- Urban Economics
- Economic Geography
- Public Finance
Background:
- Urban populations are growing globally, requiring new city formation.
- Existing models often overlook housing and infrastructure immobility.
- Forward-looking investment behavior is crucial in urban development.
Purpose of the Study:
- To analyze city formation with immobile assets.
- To investigate the impact of fixed infrastructure on city dynamics.
- To determine conditions for efficient city formation and the role of government.
Main Methods:
- Sequential city formation modeling.
- Analysis of equilibrium city size and house rents.
- Exploration of urban externalities and their impact on efficiency.
Main Results:
- Immobile housing and infrastructure lead to sequential city formation.
- Population size in existing cities remains stable, but rents fluctuate.
- Equilibrium city size may deviate from optimal levels due to externalities.
Conclusions:
- Efficient city formation requires internalizing externalities.
- Local government intervention, including borrowing for development, is essential.
- The study highlights institutional needs for effective local governance in urban growth.
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