Agglomeration and welfare: The core-periphery model in the light of Bentham, Kaldor, and Rawls

Sylvie Charlot (1) , Carl Gaigné (1) , Frédéric Robert-Nicoud (2, 3) , Jacques-François Thisse (2, 4, 5, 6, 1)

1 CESAER - Centre d'Economie et de Sociologie Rurales Appliquées à l'Agriculture et aux Espaces Ruraux
2 CEPR - Center for Economic Policy Research
3 UNIGE - Université de Genève = University of Geneva
4 UCL - Université Catholique de Louvain = Catholic University of Louvain
5 CORE - Center of Operation Research and Econometrics [Louvain]
6 CERAS - Centre d'enseignement et de recherche en analyse socio-économique

The objective of this paper is to apply different welfare approaches to the canonical model developed by Krugman, with the aim of comparing the only two possible market outcomes, i.e. agglomeration and dispersion. More precisely, we use the potential Pareto improvement criteria, as well as the utilitarian and Rawlsian welfare functions. No clear answer emerges for the following two reasons: (i) in general, there is indetermination when compensation schemes are used and (ii) the best outcome heavily depends on societal values regarding inequalities across individuals. However, simulations undertaken for plausible values of the main parameters suggest that there might be excessive agglomeration.

Mots clés: Agglomeration; Welfare; Economic geography; Compensation mechanism

Domaines: Economies et finances

Sylvie Charlot, Carl Gaigné, Frédéric Robert-Nicoud, Jacques-François Thisse. Agglomeration and welfare: The core-periphery model in the light of Bentham, Kaldor, and Rawls. Journal of Public Economics, 2006, 90 (1-2), pp.325-347. ⟨10.1016/j.jpubeco.2004.12.002⟩. ⟨halshs-00754181⟩