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Regular version of the site

Article

The optimal distribution of population across cities

Behrens K., Albouy D., Robert-Nicoud F., Seegert N.

We develop an urban model that incorporates: (1) heterogeneous sites; (2) fiscal and urban externalities; and (3) an endogenous number of cities, i.e., the extensive margin of urban development. Within- and across-city decreasing returns to scale cause agents to perceive their city as being too large in the socially optimal allocation. As a consequence, in equilibrium the largest cities on the most attractive sites are undersized, whereas the smaller cities on less attractive sites are oversized. We propose a test for optimal city size with heterogeneous sites extending the Henry George Theorem.