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The price of decentralisation

Norman, Eva Benedicte Danielsen
Working paper
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URI
http://hdl.handle.net/11250/163232
Date
2010-07
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  • Discussion papers (SAM) [586]
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.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2010:16

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