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The dynamics of city formation

Henderson, Vernon and Venables, Anthony J. (2009) The dynamics of city formation. Review of Economic Dynamics, 12 (2). pp. 233-254. ISSN 1096-6099

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Identification Number: 10.1016/


This paper examines city formation in a country whose urban population is growing steadily over time, with new cities required to accommodate this growth. In contrast to most of the literature there is immobility of housing and urban infrastructure, and investment in these assets is taken on the basis of forward-looking behavior. In the presence of these fixed assets cities form sequentially, without the population swings in existing cities that arise in current models, but with swings in house rents. Equilibrium city size, absent government, may be larger or smaller than is efficient, depending on how urban externalities vary with population. Efficient formation of cities with internalization of externalities involves local government intervention and borrowing to finance development. The paper explores the institutions required for successful local government intervention.

Item Type: Article
Official URL:
Additional Information: © 2008 Elsevier Inc.
Divisions: Geography & Environment
Subjects: G Geography. Anthropology. Recreation > G Geography (General)
JEL classification: H - Public Economics > H7 - State and Local Government; Intergovernmental Relations
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O18 - Regional, Urban, and Rural Analyses
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics
R - Urban, Rural, and Regional Economics > R5 - Regional Government Analysis
Date Deposited: 11 Sep 2013 09:17
Last Modified: 20 May 2021 00:47

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