Coping with inefficiencies in a New Economic Geography model

Arbeitspapier

This article introduces a social planner version of a model central to the New Economic Geography for explicitly answering whether the symmetric equilibrium outcome of the decentralized market economy is socially desirable. We find that savings incentives are too weak, resulting in an inefficiently low capital stock and therefore an inadequate number of product varieties. The optimal subsidy and taxation scheme to remedy these distortions resulting from the monopolistic competition structure is shown to be a sales subsidy financed by a lump-sum tax that results in marginal cost pricing. Interestingly, implementing this optimal policy might actually destroy the stability of the symmetric equilibrium and result in unintended agglomeration processes.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Vienna Institute of Demography Working Papers ; No. 4/2012

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Size and Spatial Distributions of Regional Economic Activity ; Regional Government Analysis: General
• Subject: New economic geography ; constructed capital model ; social planner ; regional policy ; agglomeration ; Regionalpolitik ; Agglomerationseffekt ; Räumlicher Wettbewerb ; Neue ökonomische Geographie ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Grafeneder-Weissteiner, Theresa ; Kubin, Ingrid ; Prettner, Klaus ; Prskawetz, Alexia ; Wrzaczek, Stefan
• Event: Veröffentlichung
• (who): Austrian Academy of Sciences (ÖAW), Vienna Institute of Demography (VID)
• (where): Vienna
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/96964
• Last update: 10.03.2025, 11:43 AM CET