Centre for Vocational Education Research LSE RSS Email Facebook Twitter


Journal article
Agglomeration externalities and urban growth controls
Wouter Vermeulen
January 2017
Paper No' :

Tags: agglomeration externalities; growth controls; second-best policy; systems of cities; urban sprawl

How can land use policy enhance the exploitation of external urban agglomeration economies? In a system of heterogeneous cities, we show that the second-best land use policy constrains city creation, while subsidizing (taxing) urban development in cities in which the marginal-average productivity gap is above (below) average. This policy cannot be decentralized to competitive urban developers, yet competition among urban developers does result in a lower-best outcome in which development is subsidized everywhere if city creation is unconstrained. A numerical application indicates that a substantial share of the welfare gains from implementing a second-best land use policy may then still be attained, although the aggregate amount of land in urban use is considerably larger. © The Author (2016). Published by Oxford University Press.