Optimization of City Size

Abstract

Club theoretic analysis of migration between asymmetric cities shows that centralized policy intervention is necessary to ensure the efficient allocation of people between cities. Quantity rationing and equalizing lump-sum tax-transfers are compared as policy instruments of central government. These instruments are found to differ in their effects on residential allocation and welfare. This is because lump- sum tax/transfers pool the welfare-creating potentials of cities thus affecting the efficiency condition. Therefore, lump-sum tax/transfers are superior to quantity rationing, and they also activate rather than stabilize migration.