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

Abstract : 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.
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Submitted on : Tuesday, November 20, 2012 - 8:47:39 AM
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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, Elsevier, 2006, 90 (1-2), pp.325-347. ⟨10.1016/j.jpubeco.2004.12.002⟩. ⟨halshs-00754181⟩

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